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Operator: Hello, and welcome to the Aemetis, Inc. First Quarter 2026 Earnings Conference Call. Joining us today are Eric McAfee, Chairman and Chief Executive Officer; Todd Waltz, Chief Financial Officer; and Andy Foster, President of Aemetis Advanced Fuels. I will now turn the call over to Todd Waltz. Todd Waltz: Thank you, and welcome, everyone. Before we begin, I would like to remind you that during the call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risk and uncertainty that could cause actual results to differ materially from those expressed or implied. Please refer to our earnings release and SEC filings for a discussion of these risks. For 2026, revenue grew 27% to $54.6 million compared with $42.9 million in 2025, with growth across each of the three reportable operating segments. Gross profit was $2.8 million in the quarter, a year-over-year improvement of nearly $8 million from the gross loss of $5.1 million in 2025. Operating loss improved approximately 60% to $6.3 million compared with $15.6 million in the prior period. Net loss improved to $21.7 million compared to $24.5 million in 2025. Production tax credits under 45C contributed $4 million of operating income during the quarter, $1.4 million in dairy RNG and $2.6 million in California ethanol, representing our first quarter of ongoing credit generation tied to quarterly production since 45z eligibility was established in 2025. Adjusted EBITDA for the quarter was negative $1.3 million, reflecting typical winter seasonality with stronger revenue and margin performance later in the quarter. Adjusted EBITDA and a reconciliation of EBITDA to net loss are described in our earnings release issued earlier today. Cash and cash equivalents at the end of the quarter were $4.8 million, comparable to year-end 2025. Capital investments in carbon intensity reduction and dairy digester construction totaled $6.5 million during the quarter. With that overview, I will turn the call over to Eric. Eric McAfee: Thank you, Todd. I want to highlight three key takeaways from 2026. First, Q1 was a financial inflection point. We grew consolidated revenue 27% year-over-year, posted positive gross profit, and improved operating loss by more than $9 million. All three of our reportable operating segments contributed to this result. Second, we benefited from the California Air Resources Board approval of seven new Low Carbon Fuel Standard pathways for our renewable natural gas business at an average carbon intensity score of negative 380 compared with a negative 150 default, which has been providing additional revenue at the higher LCFS value each quarter since Q3 2025. Six additional biogas digester pathways are nearing approval. These LCFS pathway approvals substantially expand the LCFS credit generation per MMBtu of RNG produced and will continue to drive meaningful revenue increases as we scale production. Third, our capital projects are advancing. We received the initial deliveries of dairy biogas pretreatment skids in April under our $27 million fabrication contract. Major equipment for the $40 million mechanical vapor compression project at our Keyes, California ethanol plant has arrived on-site and construction has begun. In dairy RNG, we sold 110 thousand MMBtus in Q1, a 55% increase over the same quarter last year. With H2S cleanup and biogas compression equipment contracted for 15 additional digesters, and four of the equipment units already delivered by the vendor, we are on track to double our operating dairy network with construction into 2027. At our ethanol plant, the MBR project is on track for completion later this year. The system will use on-site solar and grid electricity to displace approximately 80% of the fossil natural gas consumption at the plant. We expect MBR commissioning later this year to add approximately $32 million in annual cash flow from operations, including additional 45z and LCFS uplift from the expected reduction in the carbon intensity of the ethanol produced by the plant and cost savings on natural gas. In India, biodiesel revenue rebounded to $10.5 million in Q1 with the resumption of Oil Marketing Company shipments under new contracts. This revenue growth supports our planned initial public offering of the India subsidiary, Universal Biofuels Private Limited, for which we have retained legal, accounting, and IPO advisers. Looking ahead, our focus for 2026 is scaling production, monetizing the stacked credit value of our renewable fuels platform, completing the India IPO, and the refinancing of existing debt into long-term financing. The principal catalysts we are tracking through the year include the publication of the updated 45z GREET model by the Department of Energy to significantly increase revenues and margins, commissioning the MVR at the Keyes Ethanol Plant, rising LCFS credit prices caused by continued quarterly credit deficits, and progress on the India IPO. Thank you to our shareholders, analysts, and partners for your continued support. Operator, let us take some questions. Operator: We will now open the call for questions. Certainly. The floor is now open for questions. If you have any questions or comments, please press 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if you are listening on a speakerphone to provide optimum sound quality. Please hold for just a few moments while we poll for any questions. Your first question is coming from Matthew Blair with TPH. Please pose your question. Your line is live. Matthew Blair: Thanks, and good morning, Eric. Certainly a lot of things going on at your company, but I was hoping you could talk about the possibility of the RD and SAF plant that has been on the table for a few years now, just in light of the very robust 2026 and 2027 RVO that materially increased the biomass-based diesel requirements. How are you thinking about that RD and SAF project? And maybe you could refresh us on how much it would cost and what kind of capacity it would provide. Thank you. Eric McAfee: Thank you, Matt. The capacity is 80 million gallons a year of SAF, or if we run it only in renewable diesel mode, it is 90 million gallons. And as you know from previous reports, we have 10 different airlines we signed definitive agreements with, etc. We got full permitting approval for construction to begin in 2024. However, market conditions in renewable diesel and SAF were hampered by a new president being hired that, of course, happened in late 2024. That caused the financing markets to take a delay in looking at SAF and RD. You have done a very good job covering margins at renewable diesel producers. Just yesterday in California, Phillips 66 announced they are running above their nameplate capacity on their renewable diesel plant. And certainly, the events since March 1 have driven the price of the molecule up substantially. LA quotes SAF in neat form at $9.80 a gallon as of yesterday. So the market conditions have moved in our favor significantly compared to where we were in late 2024 with a new president being hired who certainly had a policy position that needs some clarification. We are definitely in a position right now in which there is frankly a lot of interest in new SAF production. I would say that the uncertainty in the last few months has given a new certainty to the need for domestic production of renewable fuel and a clarity that airplanes are not going to fly on hydrogen, batteries, nuclear power, or any other sort of energy source other than liquid fuels for the foreseeable number of decades. So we positioned this project specifically for the conditions we are in right now: high price of crude oil alternatives and, frankly, coalescing enthusiasm for the renewable version, which is sustainable aviation fuel. So we are definitely making progress on the financing; that is actually the only remaining part of this. We have the authority to construct permit in place for the facility, and market conditions continue to be in favor of that. That 80 million gallons, of course, if we are selling at $9.80 a gallon, is almost $800 million additional revenue. And I think the industry today is reporting roughly $1.60 a gallon of operating margin. So, obviously, a very positive improvement in our company’s overall revenue and EBITDA growth. But I am going to wrap this up by saying that there are actually four different sources of revenue for that plant, and 45z, the clean fuels provision, is still an unknown. We do not have the updated 45z. It is absolutely expected anytime soon, certainly before June, that the Republicans need to post it. And since there are four revenue streams—you sell the molecule, you sell the California credits, the federal credits, and then receive the 45z production tax credit—that is having an impact on the timing of our financing. Most lenders especially are interested in knowing what the 45z revenue is for this project. Federal law is passed. Treasury adopted their guidance in February 2026 for 45z, but the actual calculator on the Department of Energy website is going to be—that spreadsheet needs to be posted with the updated rules in the spreadsheet in order to finalize that fourth leg of the stool. I want to put that note on the table that that is having an impact. Of course, right now, the business works great without 45z, but people are curious to know what your total revenue is if we are doing a project of that size. Matthew Blair: Sounds good. And then the India biodiesel operations—nice to see them restarted in the first quarter. It looks like profitability is essentially breakeven, maybe a little bit below. Could you talk about your expectations for the second quarter? Do you think volumes will be in a similar range as the first quarter? And I think we typically see some margin improvement in the second quarter as you are able to shift different feedstocks. Do you think that will happen in the second quarter this time around? Thank you. Eric McAfee: Thanks, Matt. Let us talk about the overall trend in India, because it is very important for investors to understand that India is a socialist country, and they have elections that occurred in May. In order to support the existing government, a decision was taken by the government to set the price of diesel at the same price in March and in April as it was in January and February. There is no change in the price of diesel. I think most people on this call would understand that the price of diesel and crude oil dramatically increased in both March and April, but in India, it did not. So as of today, when you go to the pump in India, you do not know that the Iranian war happened from the price of the diesel at the pump. That means that the government is running a very large negative from their expected tax collections from diesel, and the Oil Marketing Companies are losing a very large amount of money every single day on selling diesel because they are buying crude oil at high prices and then selling it at prices below cost in India. That is about to change, and it should happen in the next few days that the price of diesel in India dramatically increases. The Oil Marketing Companies and the Ministry of Petroleum have known about this for two months and have been proactively meeting with the biodiesel and renewable diesel and sustainable aviation fuel producers—or to-be producers—in the country in order to come up with a much more solid program for us to be able to utilize all of our production capacity. We have an 80 million gallon plant that has been operating recently at 10% capacity. There has been a renewed focus on domestic renewable fuels in India. With the policies already in place, the National Biofuels Policy is 5% blended biodiesel in a 25 billion gallon market. That is about 1.25 billion gallons. Unfortunately, they are not at 5%; they are at a 0.5% blend right now, and that is rapidly changing. So you asked about second quarter. I would put it in the context of the trend of this year. We are seeing dramatic increases and, frankly, signing larger contracts and going back to the cost-plus contract model, which is what is in process right now in India. During the course of the next few months, I think you will see that kind of certainty come into play. Our IPO is really being built around us working on that reality that those policies need to be known and need to be adopted. We are setting up our IPO to be directly correlated with when those policies are adopted. I think it will have a very positive impact on not only the valuation of our business but how much money we raise. We are seeking for the IPO in India to be truly a breakout opportunity. We are looking to build the first global diversified renewable fuels business ever to go public in India and certainly anticipate that that will be the positioning we have and that the events of the last two months are having a very significant impact on India and focusing them on redirecting themselves to these policies that they have already got in the books but they have not been fully enforcing. Matthew Blair: Sounds good. Thanks for your comments. Eric McAfee: Sure. Thank you. Operator: Your next question is coming from Nate Pendleton with Texas Capital. Please pose your question. Your line is live. Nate Pendleton: Morning. Do you provide more color around the financing commentary from the release? Just looking to better understand some of the options that are available to you on addressing the debt broadly. And then more specifically, what are you looking at with regard to Keyes and then the status of the refunding for the dairy RNG projects? Eric McAfee: The improved margins and, frankly, now recovery of confidence in the need for domestic renewable fuels is directly expanding our refinancing opportunities. We have been funded and supported for the last 18 years by roughly a $3 billion fund out of Toronto that holds our senior debt, except for the $50 million of U.S. debt that we have, and our expectation is that we will continue to have very positive trends toward having municipal bond financings available to us. Municipal bonds have been used by the renewable fuels industry for a variety of basically greenfield projects. We, of course, are not greenfield; we are expansion. We are actively in the market right now working on a municipal bond type refinancing of our existing bridge financing we got from Third Eye Capital. The Renewable Energy for America Program at USDA is active, but they have slowed down their expansion in renewable fuels in a portfolio review process. The timing of that seems to be changing on a regular basis. As they make a review of their portfolio goals, they will be expanding or not expanding—it is really quite uncertain, to be frank with you. The rapid expansion of interest in the municipal bond and even commercial credit markets, certainly private credit markets, all of which we have had active discussions with, I think are going to overshadow our Renewable Energy for America Program funding. I think we will be seeing much larger financings and moving much quicker than what the USDA program currently looks like for our company. Nate Pendleton: Understood. Thanks, Eric. And then I just wanted to get your perspective on LCFS prices for a moment. While the market has flipped to deficit generation recently, prices have broadly remained quite muted. Can you talk about your expectations for that market going forward? Eric McAfee: I think we are going to see a rapid price increase during the summer and early fall. What muted the deficit—that is, we had our second quarterly deficit on April 30, and that was for the fourth quarter of last year. So there is a trailing deficit announcement. It is literally four months after the end of the physical quarter when the announcement happens. But the price being muted was an expectation by traders that people would not drive as much with high gasoline prices. Interestingly enough, on a formulaic basis, gasoline currently represents roughly 2% of the income of the average American, and I think traders over-traded on this one. They were not anticipating that the Iranian war would actually not be as big of an impact on driving as what it has—or they thought it would have a bigger impact than what it really did. It did not have as big an impact, especially in California. LCFS credit deficits, however, are not driven just by consumption of gasoline. It is also driven by how many credits come from renewable diesel. Renewable diesel is the reason we got such a large 40 million credit bank, and renewable diesel has underperformed in Q4 last year and the first part of this year. I expect it to underperform in credit generation. So if you have fewer credits being generated, quite frankly, it was a lot more of a deficit than what was expected because there were fewer renewable diesel credits generated. We think the LCFS price trend is absolutely upwards. The question of pace has been impacted by the Iranian war. That play did not quite work out, and so we do expect increases to continue. There are plenty of credits in the market; it is not that issue. The issue is: do you want to pay $200 for it 18 months from now when there are very few in the credit bank? So it is a question of major oil company traders over the next 18 months at some point in time reaching a tipping point at which they decide they do not want to have to be buying $200 credits. They might as well get out there and buy whatever they can on the market. When that happens, you will see a very rapid price rise. I would not be surprised at all to see $150 in 2027 as traders see the cap as $268, and they want to get their book filled up as soon as possible. Nate Pendleton: Got it. Thanks for the color, Eric. Eric McAfee: Sure. Thank you. Operator: Your next question is coming from Sameer Joshi at H.C. Wainwright. Please pose your question. Your line is live. Sameer Joshi: Hey, good morning, good afternoon, Eric. Thanks for taking my questions. On the MBR, I understand it is going to be deployed before the end of the year. Are there any additional certifications or verifications needed to be done before you can start generating that $32 million annualized return from it? I know some of it will be immediate because of lower natural gas consumption, but for the other incentive-based cash flows, do you need to do anything? Andy Foster: Thank you for your question. No, there are no additional certifications necessary. We received an authority to construct from the air district, which is really the big number that we have to get crossed off before we can proceed with the project, and that was received last year. We have some local permits that are sort of ongoing as you do construction, but we do not have any requirements for additional permitting or authorization in order to proceed. Construction has begun. We have begun demolition on existing concrete structures. As Eric mentioned in his comments, we have received most of the major equipment stateside now. We received the turbofans from Germany last week. The main evaporator was received from PRASH in India about a week ago. It is currently in transit to the Keyes plant. All of the big-ticket items that take a long time to fabricate are either on-site or will be on-site within the next week or so. Sameer Joshi: Got it. Thanks for that, Andy. Moving to the India OMC activity there—thanks for the color that you provided, Eric, to the previous question. But in terms of pricing that will be available for you, do you expect it to be premium pricing relative to what you got in the last year, for example, or are getting currently? Eric McAfee: Yes, there is definitely premium pricing, actually. The next contract is already being discussed. The structure of a cost-plus contract—which we did $112 million of revenue and about $14 million of positive cash flow last time we had a cost-plus contract—is being strongly considered as a replacement for what they have done in the last couple of years, which was this uncertain sort of pick-a-number-and-see-what-happens kind of structure. We covered this a couple of years ago with investors, but just a reminder: the cost-plus structure was after many years of working with the government to come up with something that was going to expand capacity utilization in India. It worked very well. Then the India government passed a 20% tariff on the feedstock that was being used by the industry, and therefore the price of the formula went up 20% after they had issued us a contract. The Oil Marketing Companies did not want to take a loss, so they just did not take delivery. That created confusion in the market. That confusion has now gotten more clarified because of the very high-cost diesel and the need for them to start getting utilization in the biodiesel industry, and that is the resolution that is being worked out right now. We do expect to return to better conditions for full capacity utilization. India imports over 90% of its crude oil and really needs to expand its domestic production of renewable fuels. Sameer Joshi: Understood. Thanks for that. And then just one last one. You did mention you got seven LCFS pathways approved for the negative 380. Six are being worked on. Should we expect those to occur in the first half, or is it a second-half event? Eric McAfee: There is a strange delay in the process. We expect the approvals to occur, but then they are a look-back a couple of quarters. If we get an approval, for example, at the end of the fourth quarter, it is a look-back to the beginning of the third quarter. So an approval by December is actually effective July 1. Strange situation, but the reality is, yes, we do expect by the end of the year to see appropriate progress here with a look-back that looks like a six-month look-back because they do it the quarter after the closing of the quarter. We will keep the market apprised of progress here, and of course, we are focusing on moving it through the process as quickly as possible. Sameer Joshi: Understood. So that would potentially be a lump sum that you get if it is approved in the fourth quarter for the previous quarter? Eric McAfee: Yes, there might be a one-quarter catch-up, but in essence, it is just the delayed approval for the previous quarter—the way the government looks at it. Sameer Joshi: Thanks a lot. Thanks for taking my questions. Eric McAfee: Thank you, Sameer. Operator: Your next question is from Dave Storms with Stonegate. Please pose your question. Your line is live. David Joseph Storms: Good morning, and thank you for taking my questions. I wanted to stick with the dairy digesters. I believe you mentioned on the call you are expecting another 15—doubling your digesters by 2027. Can you just remind us when you actually get the investment tax credits related to those investments, and maybe just your thoughts around the monetization of those net credits? Eric McAfee: Good question. We get the tax credits upon the completion—the what they call in-service date—for each single digester. So we do not have to build all 15 of them and then add six months to that or anything. As we build each digester and it goes in service, we generate the section 48 investment tax credits. We have sold about $95 million of these tax credits. We tend to sell them in $5 million or higher increments, though that is not absolutely required, and we do expect to have a single party this year acquire each one of the investment tax credit projects that we generate. We will be seeking to do at least once a quarter. There is a potential to do it more than once a quarter depending on how many new units are completed. We expect this to be probably a third-quarter contribution but could be quicker than that. The market is moving quickly, and we have some refinancing activities going on that certainly are very positive for the business. We have already fully financed the construction of $27 million of H2S and compression skids. The process is going on; we have received four of them already and have more coming. We are rapidly executing on portions of this project right now. The investment tax credit delay is a month or so after the in-service date if we were doing it in the ordinary flow of business, so not a whole lot of delay between when the project is completed and when we get the cash. David Joseph Storms: Understood. That is very helpful. And then just sticking with those potential new digesters, do those come online at the negative 380 qualification status? Or how does that process look? If they do not come on at the negative 380, what do you think the current timeline is from the negative 150 to the negative 380? Andy Foster: Are you speaking about the new digesters that are not built? Correct. Given the temporary pathway score of negative 150, then once we go through the process with CARB—which hopefully now that they have moved to a Tier 1 approval process will be significantly shorter than what we have experienced in the last few years, which is this kind of 24- to 36-month approval process—it should be more like nine months. Then we would get the benefit of that higher—or lower, however you want to look at it—CI score. So initially it is a negative 150, and as you work your way through the approval process, then you go to the blended rate of the negative 380. David Joseph Storms: That is perfect. Thank you for taking my questions. Eric McAfee: Thank you, David. Operator: Your next question is coming from Ed Woo with Incendiant Capital. Please pose your question. Your line is live. Edward Moon Woo: Yeah. Congratulations on all the progress, guys. My question is, as we are getting closer to the India IPO, what are your priorities, or what have you allocated in terms of what you are going to do with the capital raised? Eric McAfee: The India IPO is primarily designed to support the expansion of the existing projects in India and in California. Our existing projects in California, specifically focused on dairy RNG, would be a use of some of the proceeds of our India business. That is one of the reasons why it will be the first global diversified—not just biodiesel, but multiple different fuels—company to go public in India that offers the India investor access to a very well-established incentive environment here in California called the Low Carbon Fuel Standard. The federal government support of the Low Carbon Fuel Standard in California is matched by the Renewable Fuel Standard at the federal level and the 45z production tax credit and the value of the molecule. So the Indian investor has access to arguably one of the best markets in the world for renewable fuels, and that is a diversification of the growth in the India business. Another point we have made publicly is that as the largest biodiesel producer in India, we happen to be very well-positioned to build the conversion of a biodiesel facility into sustainable aviation fuel. So our India IPO not only is biodiesel and dairy renewable natural gas, but also a conversion into a SAF producer in India in addition to expanding biodiesel. It is a diversified business. The India market is very deep and wide and right now is about to have the shock of its diesel life with an incredible percentage increase in diesel costs as a result of what has been going on in the world. It is a perfect storm in favor of us as a producer in India who has been there for 18 years to open our opportunity to the public markets. We are making excellent progress, and certainly market conditions will determine the actual timing of what we do, but market conditions are trending in our direction. Edward Moon Woo: Great. Well, thanks for answering my questions, and I wish you guys good luck. Eric McAfee: Thank you, Ed. Operator: There are no further questions in queue at this time. I would now like to turn the floor back over to Eric McAfee for closing remarks. Eric McAfee: Thank you to Aemetis, Inc. stockholders, analysts, and others for joining us today. We look forward to talking with you about participating in the growth opportunities at Aemetis, Inc. Todd Waltz: Thank you for attending today’s Aemetis, Inc. earnings conference call. A written and audio version of this earnings review will be posted to the Investors section of the Aemetis, Inc. website. Operator: Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings. Welcome to the Gladstone Capital Corporation's Second Quarter Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Erich Hellmold, General Counsel. Thank you. You may begin. Erich Hellmold: Good morning, and thank you for that nice introduction. This is the earnings conference call for Gladstone Capital for the quarter ended March 31, 2026. Thank you all for calling in. We're always happy to talk to our shareholders and analysts and welcome the opportunity to provide updates on our company. Now I'll have Catherine Gerkis, our Director of Investor Relations and ESG provide a brief disclosure regarding certain regulatory matters regarding this call. Catherine Gerkis: Thank you, Erich, and good morning. Today's call may include forward-looking statements, which are based on management's estimates, assumptions and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the Investors page of our website, gladstonecapital.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Q and earnings press release for more detailed information. You can also sign up for our e-mail notification service and find information on how to contact our Investor Relations department. Now I will turn the call over to Gladstone Capital's CEO and President, Bob Marcotte. Robert Marcotte: Thank you, Catherine. Good morning, all. I'll cover the highlights for the quarter and conclude with some comments on our near-term outlook for the company. Beginning with our last quarter's results. Fundings last quarter totaled $44 million and included 3 new private equity sponsored investments totaling $34 million and $10 million of additional advances to existing portfolio companies. Exits and prepayments declined relative to what we experienced in 2025 and came in at $46 million, so assets were largely unchanged for the quarter. Interest income for the period declined slightly to $23.2 million, with a 30 basis point decline in the average SOFR rates compared to last quarter as our weighted average debt yield was 11.8% for the period. Other income for the period came in at $2.8 million, which was up $2.2 million from the -- on prepayment fees and dividends. Interest and financing costs declined with lower SOFR rates and reduced unused commitment fees. Net management fees rose $875,000, with the lower origination fee credits. However, net interest -- net investment income rose $574,000 to $11.8 million for the period. Net portfolio appreciation came in at $4.2 million, largely driven by the unrealized appreciation of 3 of the larger companies in our portfolio, which continued to scale. With respect to the portfolio, the portfolio growth for the period did not have a material impact on our investment mix or spread profile as first lien debt and total debt investments came in at 70% and 90% of the portfolio cost, respectively. Our healthcare-related industry concentration declined and is expected to fall further in the short term with a pending exits as we do not -- and we do not have any existing software-related exposures. As of the end of the quarter, our 3 nonearning debt investments were unchanged with a cost basis of $28.8 million or $13 million or 1.6% of debt investments at fair value. In addition, our PIK income for the quarter declined to $1.7 million or 7.4% of interest income. Since the end of the quarter, we funded 2 new portfolio companies representing a total of $44 million of senior secured debt. And while earning assets have increased since the end of last quarter, we are expecting a couple of exits in the near term and are actively managing a healthy pipeline of investment opportunities, which should more than cover any repayments and support our continued modest asset growth. The strength of our investment outlook represents a combination of the resilience of the growth opportunities within the lower middle market and add-on financing opportunities within our existing portfolio. In particular, we're seeing strong demand for precision manufacturing businesses where customers are looking to move sourcing back to the U.S. or scale in support of building defense-related backlogs. We ended the quarter with a conservative leverage position and net debt at a modest 92% of NAV and expect to continue to leverage our floating rate bank facility to support our floating rate assets thereby mitigating the impact of short-term rate decline. Our current line of credit facility totals $365 million. And as of the end of the quarter, borrowing availability is more than $150 million which is ample to support our near-term investment activities. And now I'll turn the call over to Nicole Schaltenbrand, Gladstone Capital's CFO, to provide some details on the fund's financial results for the quarter. Nicole? Nicole Schaltenbrand: Thanks, Bob. Good morning all. During the March quarter, total interest income declined $700,000 or 2.9% to $23.2 million as the average earning assets rose $21.7 million or 2.8% while the weighted average yield on our interest-bearing portfolio declined 40 basis points to 11.8% for the period. Total investment income was $26 million as dividends and fee income rose $2.2 million from the prior quarter. Total expenses rose $900,000 or 6.8%, driven primarily by $900,000 of higher net management fees due to higher average assets and lower closing fee credits versus the prior quarter. Net investment income for the quarter rose $11.8 million or $0.52 per share or 116% of cash distributions per common share. The net increase in net assets resulting from operations was $15.5 million, or $0.68 per share for the quarter ended March 31 as impacted by the valuation appreciation mentioned by Bob. Moving over to the balance sheet. As of March 31, total assets rose to $925 million, consisting of $907 million in investments at fair value and $18 million in cash and other assets. Liabilities declined $3 million quarter-over-quarter to $442 million as of March 31, with the decrease in LOC borrowings. The remaining balance of our liabilities consist primarily of $149.5 million of [indiscernible] convertible debt due 2030, $50 million of 3.75% notes due May 2027 and $35 million of 6.25% of perpetual preferred stock. As of March 31, net assets rose $5.3 million to $483 million, and NAV per share rose from $21.13 to $21.36. Our gross leverage as of March 31 rose to 91.8% of net assets. Monthly distributions for May and June will be $0.15 per common share, which is an annual run rate of $1.80 per share. The Board will meet in July to determine the monthly distributions to common stockholders for the following quarter. At the current distribution rate for our common stock and with a common stock price at about $19.21 per share yesterday, the distribution run rate is now producing a yield of about 9.4%. And now I'll turn it back to Bob to conclude. Robert Marcotte: Thank you, Nicole. In sum, it was another solid quarter for Gladstone Capital. The team continued to deliver strong earnings performance bolstered by prepayment fees and portfolio distributions which more than cover the current shareholder dividends. The team is doing a good job managing the portfolio, sourcing attractive private equity-backed lower middle market investment opportunities. The company is also in a very strong balance sheet position with ample borrowing capacity to prudently grow our investment portfolio and deliver the earnings to support our shareholder dividends and now we will -- operator tell our callers how to submit their questions. . Operator: [Operator Instructions] Our first question comes from the line of Erik Zwick with Lucid Capital Markets. Erik Zwick: I wanted to start with a question, just thinking a little bit about the future path of the portfolio yield. If the Fed funds futures curve is right, there shouldn't be -- market is not expecting any changes. So base rate should be more stable. But wondering if you could talk a little bit about the spreads that you saw for your April activity as well as what's in the pipeline and how those compare to the weighted average spread for the existing portfolio? Robert Marcotte: Thank you, Erik. Good question. The activity on the quarter, we really didn't see any compression in spreads what we were closing essentially is on par with our prior quarters. So we really don't see any degradation, and that's really coming from a couple of things. One, it's a disciplined approach and an added value approach in the lower middle market. We've never seen quite the same competition as upmarket transactions. Obviously, in the last quarter, there's also been a bit of a selloff with spreads backing up upmarket from us. And so we've seen less competitive pressure from larger transactions, which are probably backed up 50 to 75 basis points. So we really don't see, at the moment, much in the way of degradation on the outlook. So with closing spreads in the range of roughly 7% on average last quarter, I wouldn't expect much to impact there. We do have some impact as companies get larger, there is some trade-off, but for the most part, it's pretty stable. The other thing is I do expect that we will be funding add-ons to existing portfolio companies in the next quarter, which tend to be consistent with the existing spreads on those transactions. So I think you're correct that in the near term, the pressure on margins are going to be fairly limited. When we originally reset the dividend, we were anticipating a curve where we might have 2 or 3 rate reductions over the course of 2026. Obviously, that's not happening. And the combination of lower upmarket pressure is part of that process, which is one of the reasons why we feel pretty confident in where we stand today with respect to dividend coverage. Erik Zwick: That's great. And good to hear. Looking at just the dividend income in the most recent quarter, it was up quarter-over-quarter. I'm curious if that was driven by kind of one large dividend or if there were multiple companies that contributed to it, whether you view those more as kind of onetime or if they'll be recurring? Robert Marcotte: There are really 2 components of the income. One was the prepayment fee which we broadcast at the end of last call, last quarter. The second one was a fairly large dividend, a single transaction of a company that had been scaling and we owned a slug of the business. I would expect that there may be some additional distributions coming, but they do tend to be onetime events. So I think we do have some companies that are deleveraging that are performing well. And if the private equity sponsor feels so compelled and there aren't good acquisition opportunities, distributions is something that they will look to do. We should expect that we'll see more of those in the future, but I would not -- I would continue to characterize them as onetime events, but we are monitoring that and expect some of that to be realized over the course of 2026. Erik Zwick: And last one for me. I know you addressed this a little bit last quarter, but just your thoughts on kind of repurchasing shares at this point, whether you view that as a good use of capital, certainly, the stock has come back a little bit from the lows a couple of months ago, but trading at a 10% discount to NAV today, curious how you view that opportunity. Robert Marcotte: Erik, we are seeing tremendous opportunities to continue to execute our plan and strategy. And based upon where that returns are being generated, scale is important. So I don't think you'll likely see us buying shares in. I think we are going to be looking to scale the capital base to capitalize on our market position in the lower middle market. The long-term returns on our portfolio have been pretty good. We think it's best interest of the shareholders to continue to scale that opportunity and this is, frankly, a good time. Turmoil, the uncertainty and the issues in the marketplace provide a nice window for us to continue to execute against our long-term strategy. We've been doing this for 25 years. I think the idea is we can continue to grow it and produce good returns for our shareholders. Operator: Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: Bob, congratulations on the promotion. And please pass our best wishes to David Gladstone. On the nonaccruals, it stepped up a little bit and your asset quality is good. Can you share with us some observations you're seeing in the market? I mean is higher fuel prices just generally creating increased stress in lower middle market, middle markets? Is it less sponsor support? Because I'm seeing increased nonaccruals across multiple BDCs, incrementally, nothing huge yet, but I'd like to get a little broader perspective, if possible. Robert Marcotte: Sure. The only reason that our nonaccruals went up in fair value is because one of them, in particular, is performing very well. And so we're optimistic that it will be turned to a cash paying and go off nonaccrual. It's been a while for that Xcel situation to turn around, but we're feeling very good about it, given where it's executed. So it's not bad that it went up. It's actually good in a weird way. In terms of your specific question around energy, we don't tend to have a lot of energy-related businesses or energy-impacted businesses. I will say that we do have businesses that might provide services and there are energy costs in delivering their products. And certainly, the delivery companies, the FedExs of the world, were very quick in adjusting their rates. And so passing through surcharges has been something that I think we've encouraged and our portfolio companies have been pretty adamant on and that's really been kind of a neutral event. It's not necessarily negatively affected their business, and it's well understood cost of doing business. In terms of other energy-related matters, I would say we're seeing a little bit of slowing or uncertainty as we've said in the past we do have 1 or 2 investments that are related to the auto market. And energy and auto is a little bit up in the air right now. Certainly, whether it's electric vehicles or whether it's transitioning model years or general auto sales, they're soft. So we are closely monitoring some of those. We feel the business is on the right programs, but the volume in that market is relatively soft. Beyond that, obviously, one of the benefits is we have zero software. So some of I think what you're seeing is just momentum and decision-making in the software side of things. I don't think anybody is making any fast moves to grow the revenue or to expand their software investments at the moment. I think we're all pretty impressed at the relatively low cost and incredibly efficient AI-related tools that we're all toying with. So I think that's affecting a significant number of others, and we really don't have that exposure. So right now, I would generally say we don't see a ton of slowing. We don't see much in the way of direct impact of energy. I would almost argue it's the other way around because we do have some precision manufacturing businesses. They are seeing huge inbound order requests and frankly, we're being asked to fund capital expenditures to grow those businesses. So we kind of feeling like it's a decent opportunity for us if we're close to our businesses to take share and scale some of our opportunities. Christopher Nolan: And just as a follow-up, in general, are you seeing private equity sponsors being a little bit more hesitant in general or any equity providers or is it just sort of pretty stable? Robert Marcotte: I definitely think that private equity sponsors are being very diligent. Deals are not closing at the same pace. I think there's a lot of making sure the numbers are real, and there's no ambiguities. I think there's a fair bit of being cautious. But most of the businesses that we see, it's really about the long-term growth, not the financial structure, not the financial timing. Most of the lower middle market businesses on average are trading plus or minus 7x on EBITDA. That is a business that you can buy and grow and absorb some variability and headwinds and still make good money. If you're trading a large-scale business at 9.5, 10, 12x, you don't have the cushion to be able to absorb that. So I suspect you're seeing much more caution upmarket because the window of growth and equity appreciation is far narrower and the exit multiple that you can get to is going to be harder to achieve. For us. the idea of trading at that lower multiple in the lower middle market, you've already got 2 to 2.5 turns of potential appreciation just from scaling the business. And that drove one of -- a couple of our marks on the quarter. When we go into a business and trades at a lower multiple, and next thing you know it's $25 million or $30 million of EBITDA and the multiple for those businesses is 2 to 3 turns higher that's a natural appreciation that we as well as the private equity sponsors are able to achieve. So I guess it's just a much more forgiving entry point that is part of the process as long as the numbers are solid. Sorry to take so much on it, but that's a fundamental value to the lower middle market. Operator: Our next question comes from the line of Robert Dodd with Raymond James. Robert Dodd: Yes, congratulations, Bob. Just kind of sticking with that point, I mean, the color on strong demand from precision manufacturing, I mean, it sounds for me saying that's primarily for add-ons to those already in your portfolio. And then if we step back, I mean, to your point, the upper market valuations are tighter, spreads seem to be showing maybe -- not just precision manufacturing maybe widening, certainly widening in software, but you don't have any of that. . But to your point, is -- are you starting to see any spread expansion in your end of the market, I mean I would think if something like precision manufacturing, where the demand dynamics, like you say, onshore defense et cetera, are so good. But might be increasingly crowded from a competitive perspective for new deals, right? Obviously, the ones you already have. I mean, so do you think those markets that you're in are going to be more resistant spread expansion even if it moves in the upper market? Or any thought on how the pricing for those kind of -- the kind of businesses you do might evolve even if the upper market moves on a pricing front. Robert Marcotte: I would not expect spread to be widening in our market. Just for broad strokes, the upper markets were dipping down sub-5 over LIBOR and that ROE at the leverage point was starting to get tight. The fact that the funding costs have backed up has probably pushed those spreads up to 5.5% or 5.75% or something like that. We've always been, let's say, mid-6s and I don't think that I would expect that to expand much. It's more of a relative play at 150 basis point spread to a upper market deal, the sponsor is going to say you're way too expensive. I'd rather continue to shop it at a 50 to 75 basis point spread, they're not going to say it's not worth my time given the size of the transaction. So I think we will see less competitive spread pressure because the sponsors understand smaller deals are going to be more expensive and on a relative basis. I think the other point that I would make is, once these large platforms are as large as they are, it's very hard to go back down market, right? Once you're as big as you are, and there's not a ton of capital coming into the lower middle market. I mean, look at where the BDC equities are trending, look at who the brand names are that are raising the new funds. The only people that are actually accessing the capital markets or accessing funding sources that might compete with us would be the SBICs. And they are, by definition, somewhat constrained in their overall size. And government SBA financing is not exactly cheap these days either. So we find ourselves particularly well positioned to compete with those folks, and we obviously have a scale advantage over them. So I don't think it goes down, but I think the pressure is less and the opportunities are going to be as -- continue to be relatively positive for us to see modest asset growth within our desired balance sheet leverage constraints. Operator: Our next question comes from the line of Sean-Paul Adams with B. Riley. Sean-Paul Adams: It looks like the quarter was quite solid. Nonaccruals kind of went up in fair value, but it looks like they could be on the decline. So those legacy 3 positions might go down to 2. You guys experienced NAV accretion in a quarter where there's just been a wave of NAV losses. And the zero software exposure usually means materially less impact to this widespread market repricing. You talked a little bit about spreads. And besides potentially that auto exposure, is there just any concern about just future declines in net origination volume potentially from any other partners trying to come downstream and operate in this lower middle market segment. Robert Marcotte: Sean-Paul, it's hard. I think I would make 2 observations. One, we spend a lot of time focusing on the underlying businesses. What's the long-term growth story? What's the market position. We don't look at these as financial transactions, we look at these as businesses, what is the organic growth of this company and what's the ability of the sponsor and our ability to support and be a partner in growth of the business. . It's a very different view in looking at the business than a financial transaction that somebody is looking to invest their capital and it's a spread and a leverage decision that they make when they buy that paper. That's a different mindset, and we've always had that business orientation and focus and that's where we align ourselves with the underlying sponsor. I think that's relatively unique. And the larger transactions, the larger funds, it's about putting money out and scaling and taking advantage of the opportunity, not necessarily as focused on the underlying business. So you add the fact that it's a lot more efficient to raise capital in $1 billion increments, I mean what's the math? Last year, in 2025, more than 90% of the private capital raised were in funds bigger than $1 billion. $1 billion fund is not going to come down market to compete with us. It just -- it doesn't make economic sense. They can't put out the money fast enough to be able to achieve their investment opportunities. We may see -- we have -- there are plenty of guys out there that are in our ZIP code. It's 4 or 5 folks, but we're also talking about a market that's broad and deep. And if we're looking at [indiscernible] deals a year and all we need to do is 20, that's a good flow of opportunities that we can cherry-pick to make our investments. I don't think the big guys think that way. They think about they need to get a certain percentage share, they need to get a certain investment, they need to make a certain investment scale and they're going to continue to stay up market. I think it's going to be very difficult for them to come down market and think and focus on the lower middle market the way we are. Thank you, all. I appreciate the time. Do you want to wrap it? David Gladstone: We're going to take a minute. This is David Gladstone. [indiscernible] maybe poor. Accident in our area, so it kind of clogged up everything. There is no accident at this company. It's very straightforward. We've watched all the private lending companies go over to the high technology area and God bless them. I hope they make it. We're just going to continue to do what we've done for the last 20 years, and that is look at solid small businesses and midsized businesses and finance them where they need it. So since there are no other questions, we'll see you next quarter. That's the end of this call. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.
Operator: Good day, and welcome to the Trex Company, Inc. First Quarter 2026 Earnings Conference Call. Participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Note, this event is being recorded. I would now like to turn the conference over to our host. Please go ahead. Unknown Speaker: Thank you for joining us today, and good morning, everyone. With us on the call are Adam Zambanini, President and Chief Executive Officer, and Prithvi Gandhi, Senior Vice President and Chief Financial Officer. Trex Company, Inc. issued a press release earlier this morning containing financial results for the first quarter of 2026. This release is available on the company's website. This conference call is also being webcast and will be available on the Investor Relations page of the company's website for 30 days. Before we begin, let me remind everyone that statements on this call regarding the company's expected future performance and conditions constitute forward-looking statements within the meaning of federal securities laws. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see our most recent Form 10-Ks and Form 10-Q, as well as our 1933 and other 1934 Act filings with the SEC. Unknown Speaker: Additionally, non-GAAP financial measures will be referenced in this call. A reconciliation of these measures to the comparable GAAP financial measures can be found in our earnings press release at trex.com. The company expressly disclaims any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. With that introduction, I will turn the call over to Adam. Adam Zambanini: Thank you, and good morning, everyone. Turning to the quarter, I want to acknowledge my first earnings call as CEO of Trex Company, Inc. Having been with the company for over 20 years, most recently as COO, I approach this role focused on continuity, execution, and accelerating the strategy already in place. Our five-year plan is clear. Our priorities are set, and our focus remains on disciplined growth, operational excellence, and delivering long-term value for shareholders. As part of that work, our leadership team has sharpened Trex Company, Inc.’s vision, mission, and values to ensure that we remain aligned as we scale. This is an evolution, not a reset, and it reflects both where Trex Company, Inc. is today and where we are going. Trex Company, Inc.’s vision is to shape the future of outdoor living through purposeful innovation that enriches people's lives. To support our ambitious growth and galvanize the organization, we recently codified five long-term strategic priorities. These priorities are designed to sharpen our focus and better leverage our strengths across marketing, innovation, and execution. Given their importance to our future growth, profitability, and long-term shareholder value creation, I would like to touch on each priority in detail. Our five long-term strategic priorities are as follows. First, to create an unbreakable bond with our end users—homeowners and pro contractors. Our goal is to deepen the Trex Company, Inc. brand preference and loyalty through superior marketing, product experience, and service. Trex Company, Inc. remains the undisputed brand leader in the wood-alternative market; we are committed to further strengthening that position through continued investment. We have already increased our investment in branding and marketing, highlighted by the launch of the next phase of our consumer- and pro-focused campaign centered around the “performance engineered for your life outdoors” brand platform. This multichannel media campaign will sharpen the focus on wood-to-composite conversion while also emphasizing many of our key differentiators, including technical innovations like our heat-mitigating technology as well as our marine and fire-rated solutions. I am excited about the momentum this campaign has produced and expect Trex Company, Inc. to become increasingly visible with both homeowners and pro contractors moving forward. Meanwhile, we are investing in technology to improve proactive lead generation among our programs to better support our valued pro contractors. This last quarter, we experienced a significant double-digit increase in lead generation, pointing to the early success of this investment. We are confident that these actions will help drive Trex Company, Inc.’s future growth. Next is our continued focus on high-performance innovation. As I mentioned on last quarter's call, driving high-performance innovation remains a central pillar of my leadership mandate. Shortly after joining the company, I led the development and launch of the game-changing technology that redefined the standards in the decking category, Trex Transcend decking. It was the first cap composite decking product that set a new standard of performance and aesthetics while serving as a catalyst to drive market share expansion over the following decade. At its heart, Trex Company, Inc. is the world leader in material science. We intend to sharpen our focus and leverage our tremendous development capabilities to invent and deliver a continuous stream of next-generation outdoor living solutions designed with what we believe is separator technology that makes the hardest innovation in the building products category imaginable. Our goal is to move beyond simply competing with our industry by introducing products with highly differentiated performance that effectively place us in a category of one. Building on the legacy of Transcend, our current pipeline focuses on category-defining performance. We are currently on track for a potential game-changing regional launch in 2027, followed by a more impactful national launch in 2028 through 2030. We are excited about our best-in-class products and our innovation pipeline and look forward to sharing more in the future. Our third priority is to optimize the channels for growth. Distribution remains a key component of the Trex Company, Inc. business model, ensuring that our products are readily available for pro contractors and homeowners. As a reminder, Trex Company, Inc. already has the most comprehensive distribution network with national coverage by two-step distributors and one of the very few brands in the world with a meaningful presence at both national home centers. The distribution channel has seen changes over the last five years with significant consolidation among both distributors and dealers in the two-step channel. We have seen rapid expansion of the home center retailers into the pro channel segment as they move beyond a purely on-shelf DIY focus. We expect the distribution landscape to continue evolving. Our goal remains clear: to maintain strong channel relationships at both the two-step channel and the home center retailers so that our products reach both homeowners and pro contractors across geographies. Our recent additional shelf-space wins at the home center, along with expanded territories with two key distributors, are proof of Trex Company, Inc.’s strong distribution network and demand for our comprehensive portfolio of products. And our recently redefined incentive and marketing programs have been well received by our two-step partners as we convert business away from the competition, further strengthening these valued relationships. Our fourth priority is more of a specific target—namely, lowering the cost of railing. Railing represents a material and rapidly growing part of our revenue mix, and with a large target of doubling our railing business in five years, its importance will only increase. Due to greater manufacturing complexity and a broader range of raw material components, the railing portfolio currently operates at a lower margin than decking, presenting opportunities for operational and cost optimization. We are applying the same continuous improvement initiatives and vertical integration strategies that successfully elevated our decking margins to our rapidly growing railing portfolio. And of course, as the product line continues to grow, we expect natural margin expansion due to economies of scale and greater utilization. Over time, we believe railing margins can approach those of the core decking products, contributing to an overall lift in the corporate margin. Our fifth and final priority, growth enablement, underpins all the others. This priority defines our approach in investing in our culture, technology, and talent to enable long-term profitable growth. We are strengthening our organization by building capabilities in digital and commercial excellence and fostering an innovation-driven culture that empowers teams to move with speed and discipline. We have already enhanced our leadership team, particularly in finance, adding significant capabilities in data analytics and forecasting, creating a new internal pricing group to implement a more nuanced portfolio-level pricing strategy that balances share and margin while improving responsiveness. Over the remainder of the year, I plan to add key senior roles, including a newly created Chief Commercial Officer who will integrate sales, marketing, and IT—which will enable technology, data and analytics, and customer insights—by providing sales and marketing the tools for commercial visibility that create revenue generation. Finally, we are aligning innovation and advanced manufacturing under a newly appointed Chief Operations Officer, Zach Lauer, to enable better coordination on commercializing initiatives in parallel. Our digital transformation is directly linking consumer inspiration to contractor execution, providing the TrexPro network with highly qualified leads and accelerating the wood-to-composite conversion cycle while optimizing our pricing analytics. As you can see, we are not waiting for repair and remodel demand to recover. Instead, we are taking proactive, disciplined action to accelerate growth, strengthen margins, and position Trex Company, Inc. for sustained outperformance. We are confident that these strategic priorities provide a clear roadmap for Trex Company, Inc.’s long-term success. Our team is laser focused on execution, and I look forward to updating you on the tangible progress we are making in these priorities. Turning to the quarter, we started the year with solid results, especially in light of adverse weather conditions and a continued uncertain economic environment leading many consumers to defer large-scale discretionary repair and remodeling projects. However, we are actively taking advantage of the current market environment to aggressively invest, ensuring that we capture a disproportionate share when demand normalizes. The trends underpinning our industry's long-term growth runway—the ongoing conversion from wood to composite materials, demand for low-maintenance outdoor living, and significant long-term repair and remodel tailwinds—have not changed. With that context, I will turn it over to Prithvi, who will walk you through the quarter in greater detail. Prithvi Gandhi: Thank you, Adam, and good morning, everyone. Unless otherwise noted, all comparisons are on a year-over-year basis. As Adam mentioned, we had a solid start to the year with net sales of $343 million, an increase of 1%. First-quarter volume is driven by both consumer sales and channel stocking to support the second- and third-quarter peak buying season. With our level-load production strategy implemented in 2025, we elected to reduce channel inventories for the early part of 2026 and rely on our own inventory to support peak channel requirements later in the year, resulting in lower first-quarter volume. From a channel perspective, we saw strong home-center-driven DIY demand early in the quarter, which shifted over the course of the quarter towards greater strength in higher-end pro-contractor-driven products. Gross profit was $139 million with gross margin of 40.5%, about 100 basis points better than we expected. A favorable mix of higher-margin premium decking products and lower sales of railing and margin improvements from continued operational excellence helped to offset an increase in depreciation expenses related to decking lines coming into production readiness at our Arkansas facility. Importantly, we did not experience any noticeable cost pressures related to the increase in oil prices related to the conflict in the Middle East. I would like to spend a few minutes diving a bit deeper into our raw material exposure, as it is the majority of our COGS—especially recycled LDPE. While recycled LDPE is a petrochemical, its pricing dynamic is quite distinct from virgin polyethylene, which is tied directly to the price of oil. Historically, recycled LDPE prices tend to lag virgin polyethylene by several quarters and generally exhibit less volatility. This reflects the substitution dynamic—users of virgin polyethylene typically need to see sustained higher prices before adjusting their production to incorporate even modest levels of recycled content, which in turn increases demand and prices for recycled LDPE. And supply of this material is not an issue, as we are entirely domestically sourced. As a leader in the use of recycled content, this is a significant competitive advantage, particularly during periods of raw material inflation when competitors relying on virgin inputs are more exposed to volatility. And while we are seeing increases in certain other input costs, such as diesel fuel and aluminum, we have a range of mitigating levers available, including cost-out initiatives, operational efficiencies, and product-specific pricing actions. Importantly, the same inflationary pressures also affect our competitors. Moving on to selling, general, and administrative expenses, which were $56 million in Q1, representing 16.2% of net sales. Excluding digital transformation costs of $1 million and Arkansas facility startup expenses of $200 thousand, SG&A was $54 million. SG&A came in below our expectations despite continued investments in branding and marketing programs to drive future growth. Lower self-insured medical costs and the timing of expenses more than offset higher investments in the quarter. Because we are in the final stages of the Arkansas facility build-out and did not finish as expected in Q1, interest expenses were capitalized on the balance sheet, resulting in no P&L impact. Our full-year guidance for interest expense now reflects completion beginning in Q2. Putting it all together, adjusted EBITDA of $103 million grew 2% in the quarter due to positive pricing and mix, cost control, and the timing of expenses. Free cash flow was negative $143 million as we built inventory and accounts receivable ahead of our peak selling season. This was an almost 40% improvement versus the prior year. As our capital investment needs declined significantly now that we are finishing the Arkansas facility, our balance sheet remains strong with our net debt leverage of 1x EBITDA at the low end of our target range of 1x to 2x. We are confident in our long-term free cash flow generation and continue to have balance sheet capacity to pursue our capital allocation agenda, which prioritizes an unwavering commitment to first drive growth, then return cash to shareholders through share repurchases, and lastly, to pursue disciplined M&A. In the quarter, the company took advantage of an opportunity in the stock price by executing continued aggressive share repurchases. For the first time in the company's history, we implemented an accelerated share repurchase, or ASR, to quickly buy back a large amount of stock. This $100 million ASR was part of our larger $150 million share repurchase announcement. We will be completing the full $150 million repurchase during the second quarter, and I am pleased to announce that the board has authorized a 10 million share increase to the company's existing share repurchase program, reflecting their confidence in the long-term intrinsic value of Trex Company, Inc. Turning to outlook. We are maintaining our full-year guidance based on our solid start to the year and our continued expectation for the broader repair and remodel market to be flat to down this year. We remain minimally exposed to input cost inflation. Our vertically integrated domestic recycling infrastructure and approximately 95% recycled content drive a highly stable cost profile, which helps protect margins during periods of petrochemical volatility. We continue to expect fiscal year net sales of $1.185 billion to $1.230 billion, adjusted gross margin of approximately 37.5%, and adjusted EBITDA of $340 million to $350 million. For the second quarter, we expect net sales in the range of $388 million to $403 million, and we expect to see a reversal of the gross margin benefit from product mix that we saw in Q1. Before turning the call back to Adam, I want to touch on two key metrics. The first is sell-in/sell-out. Sell-in represents Trex Company, Inc.’s sales to its distributors and home centers. Sell-out represents the sales from our distributors and home centers to dealers and end consumers. As we discussed in the past, quarterly sell-in and sell-out results can be influenced by timing, seasonality, and channel dynamics and, as a result, may not always reflect the underlying long-term trends of the business. To provide a clearer view of performance and how we manage the business, we are introducing a rolling 12-month sell-in and sell-out metric, which we will report each quarter going forward. This metric smooths short-term volatility and better captures fundamental demand trends by accounting for seasonality and other factors that are not fully reflected in quarterly movements. For Q1, growth for our trailing 12-month sell-in was 7% and growth for our trailing 12-month sell-out was 6%. The second metric is one which we believe will experience meaningful improvement not only this year, but for many years to come: free cash flow. As many of you are aware, we plan on ramping up production at our new Arkansas facility beginning next year. More importantly, the CapEx associated with the plant build-out will end this year, with the majority of our Arkansas-related spend finishing in the first half. We anticipate a total of $100 million to $120 million, down from $224 million in 2025—a more than $100 million improvement. And with construction substantially completed by the end of this year, we expect another meaningful decline in CapEx in 2027 to maintenance levels of approximately 5% to 6% of revenue, driving further improvements in free cash flow. We have built Arkansas to effectively more than double our revenue potential with just the purchase of additional lines. So this upfront investment will provide us with years of capacity expansion ability with minimal additional CapEx. This gives us a strong line of sight to continuous robust free cash flow generation regardless of the exact timing of a significant rebound in consumer demand. With our organic expansion needs met through our Arkansas campus, our capital allocation priorities will next focus on additional share repurchases and then on accretive bolt-on acquisitions. Trex Company, Inc. will return to the free cash flow generating machine that it had been before the recent necessary investment in capacity expansion, which started during COVID and will end this year. I will now turn the call back to Adam for his closing remarks. Adam Zambanini: Thank you, Prithvi. Hopefully, you can feel the excitement of the Trex Company, Inc. team about the great opportunities we see in front of us. While the current market environment remains challenging, we are investing in our business and aggressively innovating to capture a greater share of the growing addressable market. We remain the undeniable leader in our market, and we are infusing our team with a more focused, nimble, entrepreneurial culture that we had in the early days of my career at Trex Company, Inc. We are confident this is the right time to evolve our approach, leveraging our great history and brand. Before we close, I want to recognize our people. Their commitment, discipline, and focus on the customer continue to be the foundation of our performance. The progress we discussed today is a direct result of their work, and they remain committed to our long-term success. We believe when our people succeed, our shareholders succeed. Operator, we would like to open the call to questions. Operator: We will now open the call for questions. The first question comes from an analyst with Jefferies. Analyst: Hey, guys. Congrats on a really strong quarter—really good execution. And Adam, congrats on the new role. It was very noticeable in terms of the energy you laid out in longer-term strategic plans. Give us a little perspective on some of the things you are looking to impact. We have noticed leadership changes. You called out the new COO role and certainly a new head of marketing. There appears to be a bigger focus on innovation and streamlining efforts so you can put out product quicker. Help us think through how you are approaching things perhaps a little differently and how that potentially unlocks the growth engine and gets products to market a little quicker. Adam Zambanini: Good morning. Thank you for the kind words; we really appreciate it. When I look at the marketplace today, it is a very dynamic and challenging market. You start to look at the consolidation of national accounts and inflation, and you have to ask: do we have the right strategy in place—which I believe we do, and we laid it out on the call. Do we have the right people? Absolutely. Do we have the right structure? And that is really what I am focusing on—making sure that we have the right structure to execute the strategy. Now on top of that, once we have that structure in place, we innovate, and I think that is where I add the most value to Trex Company, Inc., because when I talk about separator technology, it is about what is going to make Trex Company, Inc. a category of one. And so that focus right now is to take what Trex Company, Inc. used to have—let us say 100 initiatives—and boil that down to 20 underneath five imperatives. So we are working on fewer things that are more impactful to the organization. We want $100 million programs on everything that we work on. That has been our focus as an executive team, and I think it has provided the organization with a tremendous amount of clarity moving forward. Analyst: In an uncertain macro backdrop, how did sell-out trends shape up in the quarter? I appreciate the LTM number, but any more color on how that progressed intra-quarter? And perhaps how things are looking in peak decking season—April and May—and how the channel responded to programs you have rolled out and any marketing efforts? Prithvi Gandhi: Okay, a lot to unpack there. Overall, in terms of the quarter itself, as we said in my remarks, we managed sell-in to the channel based on our level-loading strategy, and essentially overall demand is progressing as we expected in our assumptions for the year. As we go through the busy season, the channel is on the lighter end in terms of the inventory they are carrying—closer to 30 to 40 days of inventory. Assuming a normal busy season, we expect more impetus for sell-in as we progress through the second and third quarters. Adam Zambanini: The lower inventory on the channel side is a function of our decision to take out volatility. For some high-level context as we look at Q1, January and February were fairly challenging. I think most people came out of those two months wondering how this year was going to pan out, but we saw a nice rebound in March as we moved into April. Everybody is still projecting flat to slightly down in the market, but we are expecting to outperform. One trend we have seen over the last year or two is more national accounts acquiring independent lumber yards and carrying less inventory. In many cases, they would carry 90 or even up to 120 days of inventory, and now we see some of them carrying around 30 days. That means probably fewer trucks in Q1, but when in-season demand hits in Q2, you must make sure you have inventory on the ground to execute because there is going to be quick pull-through. Analyst: Thank you. The next question comes from an analyst with William Blair. First topic is gross margin. You beat your internal expectation nicely. Can you unpack what happened? It sounds like mix might have been favorable. Prithvi Gandhi: Yes. Thanks for the question. In Q1, relative to our forecast, we were ahead by about 100 basis points, largely driven by favorable mix from decking. If you recall, we announced a price increase around our aluminum railing in January, and we did see some pull-forward in Q4 and, as a result, a lower mix of railing in Q1. That was the primary driver of why gross margin performed better in Q1. Analyst: Got it. And then SG&A also beat a little bit. I guess the guide still assumes that it is up year over year the rest of the way. Was there some timing issue in Q1? Prithvi Gandhi: In Q1, SG&A came in about $5 million lower than we had planned, driven by two things. One is favorability in medical claims, and that is a hard one to forecast. We feel good about the full year, but in any quarter, things can move around, and that is what we think happened here. Second, there was timing around certain expenses related to our investments in growth and brand awareness. We expect those to come through in the second quarter. To level set, we still expect full-year SG&A to be around 18% of sales. In Q2, we expect a significant sequential dollar lift in SG&A, based on certain expenses that should have been incurred in Q1 moving into Q2 and our continued investment in marketing and innovation that drive growth and brand awareness. With those things, you should see a dollar step-up from Q1 to Q2. Adam Zambanini: We also were trying to be responsible. The war in the Middle East broke out in Q1, and we managed the manageable. That was one area we looked at from an SG&A perspective. As things have calmed down, we are going to continue with the execution of our plan. Analyst: Thank you. The next question is from an analyst with UBS. Good morning. The revenue outlook seems to imply a decent deceleration in the second half. It does seem to imply roughly 5% year-over-year growth in the second half despite a fairly easy comp in the fourth quarter. Is this really just conservatism given the conflict in the Middle East and macro uncertainty, or is there anything else you are trying to message? Prithvi Gandhi: You nailed it. In terms of growth, it is around 5%—our number is about 4%. When we look at this year, there are still some things we want to see in terms of how the war is going to pan out. If it keeps going on over the next several months, then yes, there is some conservatism. If we think this will settle down, there are opportunities for us in terms of execution. One wildcard is the lower-end consumer, who is still struggling. We still see the high end doing really well on the decking side, and we are definitely focused on converting more of the wood market—about 75% of the market is still wood—and we are getting more creative as to how we will convert that opportunity. A couple other things around the second half. We introduced a refuge PVC product; most of those sales will occur in Q2 to Q4. That should help revenue growth. Second, in line with the industry, we announced a mid-quarter price increase again around aluminum railings; that was not in our prior forecast. Third, our continued investments in marketing and innovation are showing green shoots—lead generation, sample orders—all progressing really well, and we expect to drive some conversion from that. Analyst: That is helpful. On the quarterly cadence of adjusted EBITDA margin, second-quarter revenue is expected to be up sequentially, but is it possible EBITDA margin is actually down quarter over quarter given factors like the step-up in SG&A? Prithvi Gandhi: From Q2 2025 to Q2 2026, you should expect EBITDA margin to be lower this year. We expect a little more than half of the Q1 gross margin favorability to reverse in Q2, and SG&A will see a significant dollar step-up between Q1 and Q2. Those two together create a different EBITDA profile versus Q2 of last year. Analyst: But sequentially, Q1 to Q2, EBITDA margin could be down as well? Prithvi Gandhi: Yes, Q1 to Q2 as well—you should see some decline in EBITDA margin. Analyst: Thank you. The next question comes from an analyst with J.P. Morgan. Analyst: Hi, this is [inaudible] in for Michael. First, on cadence throughout the year and the back half, can we get an update on how you are looking at the R&R backdrop and how that connects to the full-year guidance range? Prithvi Gandhi: Looking at the home center business, there has been a lot of forecasts from negative 1% to 1% growth. We have seen many forecasts at flat to slightly down. We are doing low- to mid-single-digit growth. For the full year, it is about 3% right now in terms of our year-over-year growth. Our overall macro assumption on repair and remodel is unchanged—still flat to down with the back half better than the first half, in line with indicators like LIRA. Analyst: You mentioned the relative strength between DIY and pro and how it shifted through the quarter. Could you provide more detail and how you are thinking about that going forward? Adam Zambanini: We are a marketing powerhouse, so we had to get back to our roots. That is the territory I have come from. We reinvested in that platform, made structural changes in marketing, and filled out that department. I feel like we are in a great spot. That really helps drive the high end of the marketplace. Once again, products like Trex Transcend and even our Select decking are doing really well, along with higher-end lines of railing. Those are the consumers buying right now. The focus is also on converting the low end—converting more wood users over to Trex Company, Inc. On the high end, there has been focus on the PVC area—not just with the introduction of Trex Refuge; we have other products that compete in the fire segment. There is plenty of opportunity, and a lot of the mid-to-premium end is doing well because our marketing is working. Analyst: Thank you. The next question comes from an analyst with D.A. Davidson. I was hoping to talk more about the shelf-space commentary. Can you help frame the magnitude of that expansion and how you expect that business to ramp over the next couple of quarters? Maybe some sense on price point? Prithvi Gandhi: Good morning. We would characterize it as meaningful. We have picked up both decking and railing slots in the recent line reviews. Trex Company, Inc. was one of what we believe are two winners at retail, and some peers did not do as well. We will not give a specific number, but it is meaningful for growth. In terms of timing, shelf resets are always challenging to time exactly. We will start to see some of those reset and some products in place now as we move into Q2, with momentum building from Q2 into Q3 and Q4. Analyst: A two-parter on railing. Can you talk about the pace at which you can drive improvements in controllable costs and how M&A may factor? Second, does lowering cost act as a catalyst for market share objectives and the pace of volume growth? Adam Zambanini: Great question. Railings are about material science. We have seen things this year that we are going to unlock on the material science side of the portfolio that will lower raw material cost of railing. In many cases, this will drive margin expansion. Trex Company, Inc. is aggressively priced in every segment—from the opening price point at home centers that can be $20 to $25 a foot, all the way up to systems at $250 a foot. Most of the material science benefits will drop to the bottom line. On vertical integration and acquisitions, these are very small companies we are looking at, but with meaningful impact in lowering raw material streams. In some cases, we can be more aggressive to convert, but we are satisfied with where railing sits today. The focus is on expanding margins. Prithvi Gandhi: Just to add, back in 2023 we said we would double our business by 2028. We are on track to do that. Analyst: Thank you. The next question comes from an analyst with Goldman Sachs. Analyst: Good morning. This is [inaudible] in for Susan. On the high priorities you mentioned earlier, where do you see the biggest opportunity to drive above-market growth in the near term relative to those more helpful in the long run? Analyst: Could you repeat which priorities? Analyst: Yes—within the five you mentioned, which provides the biggest near-term upside to drive above-market growth versus those that are longer-term? Adam Zambanini: Near term, it is creating an unbreakable bond with end users—getting back to basics on marketing and having the right people in the right spots to convert more downstream with contractors and consumers. Not far behind that is launching high-performance innovation. We will start regional launches in 2027 and see a much more meaningful impact from 2028 to 2030 with national launches. But near term, it is the unbreakable bond with end users. Analyst: You talked about optimizing channels for growth. Does that mean expanding presence in retail versus making changes to wholesale? We are seeing consolidation at the wholesale level—how does that provide more opportunities, and where do you see the biggest ones? Adam Zambanini: We created a pricing department to price our products by channel. You want to avoid channel conflict between home centers and the pro channel, and sometimes products cross-pollinate. Our perspective is to have the right products in the right channels at the right price. The market is very dynamic with a lot of consolidation at the dealer and distributor levels. As there is consolidation, there will be channel changes long term. We need the right pricing strategy for each channel with the right products. We have been creating that structure to allow us to take market share while maximizing margins over time. Analyst: Thank you. The next question comes from an analyst with BMO Capital. Analyst: Good morning. Looking at your full-year guidance, what is embedded within that in terms of sell-out—both decking and railing? Prithvi Gandhi: In total, our sell-in growth is about 3%. In terms of sell-out, we are assuming something close to that in the overall market. Analyst: That would imply a meaningful slowdown from the trailing 12 months, which was about 6%. But you are not seeing anything today that suggests that slowdown is happening—is that fair? Prithvi Gandhi: As Adam said, the year started slow, some of it driven by weather. Since March we have seen good order intake, and that continues through April. Overall, we do not see anything that would cause us to think otherwise. Analyst: Switching to capital allocation. You talked about CapEx coming down. As we sit here today and you have been active with share repurchases, can you talk about the M&A pipeline and how you rank priorities between repurchases and M&A? Prithvi Gandhi: Good question. Lee just joined us a couple of months ago, and we are actively doing the work. Adam has talked about areas of interest: number one, vertical integration and margin expansion; two, the whole outdoor living space from the fence back to the deck and house; and third, more distant, the exterior building envelope. That is the playfield. We are doing the strategy work now to identify targets and areas that would be very synergistic. We should have a point of view shortly, and then we will build out the pipeline. It is still early days around M&A. In terms of capital allocation, I always look at M&A against share buybacks—where is our share price, how much cash flow do we have, what is the intrinsic value, and the return of buying back shares versus using that capital for an M&A transaction. The big difference is M&A gives you future growth options; buybacks do not. That is the analysis we go through. Analyst: Thanks. The next question comes from an analyst with Wolfe Research. On your goal to lower the cost of railing and drive margin improvement, are there any numbers you can put around the opportunity in terms of cost reduction or margin improvement? You talked about eventually pushing margins closer to decking—can that happen in a five-year time frame? Adam Zambanini: In our strategic plan, that can happen in a five-year time frame. We have it broken out by year, but we are not sharing that detail at this time. Analyst: Expectations for inflation in 2026. You mentioned reasons why you should be shielded from inflation on LDPE. Can you put numbers around potential inflationary impact and what you are expecting in terms of price/cost relative to that inflation? Prithvi Gandhi: As we said at the start of the year, price/cost for the full year is relatively neutral, and we continue to have that expectation. Three areas have some exposure, but we have taken steps to mitigate it. One is around virgin resins—on that front, we essentially have a fixed cost for the rest of the year, and that is baked into the forecast. Second is diesel prices—we pay for inbound freight and transfers between plants. We have pushed back against vendors on the cost of raw materials to offset some diesel inflation and are managing internal transfers to mitigate impact. Third is PVC—the new product we have introduced. Our costs are fixed through the balance of 2026 with our third-party sourcing. On all these fronts, we are well positioned in managing any inflationary impact. Analyst: Thank you. The next question comes from an analyst with Loop Capital. You mentioned the cold start to the year in January and February. Did you see delays with the start of the spring selling season in seasonal markets such as the Northeast that could benefit Q2 sell-through? Adam Zambanini: Looking at the northern markets—New England across to Minnesota and that upper northern belt—we were down double digits in Q1. In the Mid-Atlantic—draw a line across the U.S.—about flat. In the southern U.S., we started to see double-digit growth again. We could see the weather influence, and we are just now starting to see some northern territories wake up. The promising part is where the weather has been good, we have seen nice numbers across the board. Analyst: Very helpful. And on the mid-quarter railing price increase, any impact from the new Section 232 valuation on your railing products, and will the increase fully offset inflation pressure you are seeing? Prithvi Gandhi: In terms of tariffs, in our overall cost position it is less than a 5% impact, and through our pricing initiatives we are able to cover most of that cost increase. Analyst: Thank you. The next question comes from an analyst with Benchmark Company. Most of my questions have been asked. Follow-up about inventory in the channel and your own inventory. Your inventory looks a little higher than usual in Q1. Is that just an extension of level-loading? Was it in part because of the slow start to the year? Or being prepared for a bounce-back? Adam Zambanini: We have our level-loading strategy in place. We want to be there to serve the market when demand is ready. Channel inventory is about flat to prior year, but with pricing in there, on a lineal-foot basis external to Trex Company, Inc., inventory is slightly down. As discussed earlier, larger customers like national accounts did not take as much inventory. We believe demand will be there in Q2; therefore, we have a little higher inventory now in Q1 because those customers are going to need it right away as we move into Q2. That is the key change. Analyst: Thanks, and congrats again. The next question comes from an analyst with Stephens. I want to dig into the railing impact on margin a bit more. You mentioned that lower railing sales helped margins in Q1. I think the expectation was for a higher mix of railing sales through this year to have roughly an 80-basis-point impact to gross margin. Is that expected to normalize in Q2 fully? With movements in raws and pricing and initiatives to grow margins—which I understand you are not ready to fully quantify—is that still the best way to think about the margin impact for this year, and then improvement from there more in 2027? Prithvi Gandhi: Let me start by reminding everyone of what we said back in November when we reported Q3 2025 results. At that time, we stated we expected about 250 basis points of headwind to adjusted gross margin in 2026 on a full-year basis. We continue to have this expectation for 2026, and we finished 2025 with adjusted gross margin of 40% for the full year. Also in November, we said 170 to 180 basis points of that 250 was entirely from the depreciation associated with bringing Arkansas to production readiness. The balance—70 to 80 basis points—is from railing growth, and we continue to expect that for the full year. In Q1, we saw about 100 basis points of gross margin favorability from railing being smaller in the mix. In Q2, we expect a little more than half of that to reverse, and the rest will reverse through the balance of the year. That is how to think about it. Analyst: Thanks. And Adam, you mentioned Trex Company, Inc. has historically been a marketing powerhouse and you are getting back to your roots. Is the thought that branding and marketing spend will continue at a similar level as a percentage of sales and grow with sales, or will there be a need to ramp that up more with new product rollouts? Adam Zambanini: As long as I am here, we are going to be investing in marketing. The 18% is a really good number. During COVID, you saw SG&A plummet—we were out of capacity—and we delivered strong numbers. If I go back in time, I would have invested more then to create more awareness around the Trex Company, Inc. brand. Will there be some leverage over time on SG&A? Sure, but it will not be 100 or 200 basis points. It might be 10, 20, 30 basis points as we expand and grow, because I want to make sure we are still investing in that platform to get more contractors and more consumers to buy Trex Company, Inc. We will continue to invest; when we can leverage, we will, but investing in marketing will remain very important. Analyst: Last one—on M&A appetite. Is there potential or appetite for larger deals, or more tuck-in, complementary stuff? Adam Zambanini: Our five-year strategic plan is tuck-in M&A, and we have been very consistent. Number one, vertical integration—this is about margin expansion. Number two, we have the license to own the backyard—from the threshold of your sliding glass door all the way out to the fence, Trex Company, Inc. could be anywhere in that backyard. That is where we would go next. Lastly, the envelope of the house. We view this as smaller tuck-in acquisitions that can add value. Our brand is our number one asset; there are a lot of smaller companies where the Trex Company, Inc. brand makes a lot of sense and helps us potentially grow our TAM. We reside in a $75 billion outdoor living market. Our TAM is around $14 billion, and if we can expand that over four to five years to $20 billion to $25 billion, that benefits Trex Company, Inc. in terms of opportunities to grow market share. Analyst: Thank you, and congrats on the quarter and new role. The next question is from an analyst with Barclays. First, on capacity dynamics: given demand trends and contractor sentiment, how does this support your strategy around incremental capacity, and how would you adjust the capacity network as the Arkansas facility ramps? Is Arkansas displacing any production elsewhere? Adam Zambanini: At the contractor level, we still see books out six to eight weeks on the low end, and in some areas eight to ten weeks. In some cases, contractors feel slightly better this year than last year. Part of that is our marketing investment—we are seeing significant double-digit growth in leads we are giving to our contractors, which may be extending backlogs. On capacity, we have been consistent: as we look at Little Rock and our growth, we would be looking at opening that in 2027 from where we sit today. Even if we did not see as much growth, Little Rock provides leverage—it is going to be our lowest-cost facility. We have one facility in the Winchester footprint that is over 30 years old. We will maximize our manufacturing footprint over the longer term. Our expectations are for good growth in 2027 through 2030, and we are going to need all that capacity—from Little Rock to Winchester to Nevada. Analyst: With the introduction of your PVC product, how is it faring regionally—Northeast, West Coast? And more broadly, on pro versus DIY, is higher-end luxury still outperforming the opening price point? Adam Zambanini: We still see outperformance from the middle to higher-end consumer, which has been consistent over the last several years. Trex Company, Inc. is putting more marketing effort into conversion from wood. We have a new campaign called “No Regrets.” If you have seen it on TV, it shows a dock owner maintaining wood versus a dock owner with a Trex deck who can go enjoy the boat for the day—No Regrets. It is a strong visual. Targeting wood is a huge focus. On PVC, we had a great rollout on the West Coast and are ahead of expectations on manufacturing. We are getting increased supply from our supplier. The largest market for PVC is in New England and the Mid-Atlantic, and we have quickly opened those two regions as we rolled into Q2. It is a roughly $0.5 billion market, and Trex Company, Inc. had not played in it. We plan to expand that over time as a great growth opportunity. Analyst: Thank you. The next question is from an analyst with Bank of America. Can you talk about the right level of leverage for the business longer term, and would you be open to buying back more stock as free cash flow frees up next? Prithvi Gandhi: Thanks for the question. We want to manage company leverage between 1x and 2x. This year, free cash flow will increase by about $100 million versus last year. We expect to complete $150 million in buybacks by the end of this quarter. Then we will look at the rest of the year—where free cash flow is and how the business is doing. With the board's new authorization, we have capacity to do more buybacks. Based on where the stock price is relative to intrinsic value, it is still a compelling opportunity. Going forward into 2027, we will have even more free cash flow because we will essentially be done with capacity expansion. Share buybacks will continue to be a significant part of capital allocation. Analyst: And on reinvestments you are making, can you give more color on allocation and priorities between hiring more sales versus marketing? Adam Zambanini: A bigger portion will be marketing-related and the investments we are making to create awareness—linear TV, streaming, podcasts, and all forms you can think of to get the Trex Company, Inc. name out. Then drive to trex.com—there are investments in the website—and investments in innovation. If you want game-changing innovation, you have to invest in R&D. The major buckets are marketing and innovation, with some in sales to support and execute the strategy longer term. Operator: That concludes the question-and-answer session. I would like to turn the floor to management for any closing remarks. Adam Zambanini: Thank you, everyone. Prithvi and I look forward to speaking to you and seeing you at upcoming conferences in the coming weeks. Operator: This concludes today's teleconference. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to the Vontier First Quarter 2026 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, May 7, 2026. Replay will be made available shortly after. I'd like to turn the conference over to Ryan Edelman, Vontier's Vice President of Investor Relations. Please go ahead. Ryan Edelman: Thanks. Good morning, everyone, and thank you for joining us on the call this morning to discuss our first quarter results. With me on the call today are Mark Morelli, our President and Chief Executive Officer; and Anshooman Aga, our Executive Vice President and Chief Financial Officer. You can find both our press release as well as our slide presentation that we will refer to during today's call on the Investor Relations section of our website at investors.vontier.com. Please note that during today's call, we will present certain non-GAAP financial measures. We'll also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to risks and uncertainties. Actual results might differ materially from any forward-looking statements that we make today, and we do not assume any obligation to update them. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available on our website and in our SEC filings. With that, please turn to Slide 3, and I'll turn the call over to Mark. Mark Morelli: Thanks, Ryan. Good morning, everyone, and thank you for joining us on the call this morning. Let's get started with a few high-level takeaways from the quarter. Vontier delivered solid sales and orders growth to start the year as we continue to gain traction on our connected mobility strategy. We're expanding our integrated offerings to capitalize on strong secular tailwinds across our end markets. Core sales grew nearly 2%, slightly ahead of our expectations, driven by strong performance in our Environmental & Fueling Solutions segment. Orders were up approximately 5% on a core basis, including strong demand for fueling equipment and key wins in retail solutions. Adjusted operating margin declined 70 basis points below our expectations, reflecting unfavorable mix and timing of R&D expenses. Importantly, the underlying fundamentals of the business are intact, and we are confident in our full year outlook as well as our ability to achieve the $15 million in savings related to ongoing simplification and 80/20 efforts. We're seeing meaningful momentum in our convenience retail end market, which strengthens our visibility and reinforces our confidence in the growth opportunity ahead. We have market-leading technologies that optimize our customers' operations, unmatched domain expertise to solve high-value problems and best-in-class channels to market. Growth within this end market was led by Environmental & Fueling Solutions with double-digit growth in both dispensers and aftermarket parts. Dispenser demand is strong, supported by the ongoing build-out and modernization of retail fueling infrastructure. The pull-through from advanced payment technology is helping to drive replacement and upgrade demand. As an example of this, we launched the next-generation FlexPay6 outdoor payment terminal in the first quarter. While bolstering our cloud-connected industry-leading payment security, it features a larger flush-mounted touchscreen along with an integrated card reader and PIN pad. It also enhances our unified payment solution by offering a more interactive consumer interface that helps reduce transaction times and improves engagement at the pump. We're also seeing strong momentum for our innovative technologies inside the store. Retail solutions, part of Invenco brand delivered strong growth in payment, media and point-of-sale systems. The convenience retail end market is resilient even in uncertain economic backdrops. Over the last 25 years, this end market has consistently demonstrated durability through periods of volatility. Higher oil prices have historically been a net positive as higher fuel margins drive improved profitability for C-store operators, enabling them to prioritize modernization, food and beverage offerings and invest in the consumer experience. Industry data suggests high retail fuel prices typically result in more frequent visits, which creates an opportunity for greater conversion for in-store sales as consumers place more emphasis on value. In prior cycles, higher fuel margins, combined with the trade-down effect as consumers shift toward lower-cost C-store options have created tailwinds to generate more cash flow for C-store operators. In turn, we see robust capital expenditures for multiyear storefront build-outs and retrofits. This is particularly true of larger regional and national C-store chains where we have higher share and they focus on delivering an elevated consumer experience. We're seeing this play out today. A good example is 7-Eleven's recently announced intention to remodel 7,000 stores across North America through 2030, standardizing around their more modern food and beverage focused format. This is in addition to the 1,300 new sites they expect to build over that same time horizon. This kind of long-term investment reinforces the strength of the category and the opportunity for Vontier. This morning, we also announced an important step in our portfolio simplification strategy. We've announced an agreement to sell our global fleet telematics business, Teletrac, for a total purchase price that values the business at $220 million. The purchase price consists of $80 million in cash proceeds and a $100 million seller's note, and Vontier will retain an approximate 30% equity stake in the business. We've outlined those details for you on Slide 4. The sale marks the completion of a successful multiyear turnaround of this business. At the time of our spin, Teletrac was churning out about 25% of customers with declining profitability and negative free cash flow. Since then, the team has meaningfully improved the business by launching a new platform, significantly reducing churn, accelerating ARR growth to mid-single digits, improving profitability and generating positive free cash flow. This has been a major effort for the Teletrac team, and we're grateful for their contributions. We believe Teletrac is well positioned for its next chapter of growth with better focus and access to capital under its new ownership. We expect this transaction to close in June, and we'll deploy the cash proceeds consistent with our disciplined capital allocation framework with a focus on additional share repurchases and selective bolt-on acquisitions. Before I turn the call over to Anshooman, I want to reiterate our confidence in the full year outlook. While the geopolitical backdrop added some uncertainty, demand trends remain constructive. We're also strengthening the foundation of our business to drive more profitable growth over time through commercial excellence and innovation and a relentless focus on execution. As we finalize the remaining organizational changes and implement our cost actions, we still expect incremental savings to ramp in the second half of this year. Combined with disciplined capital deployment, we are confident in our ability to deliver double-digit EPS growth. With that, I'll turn the call over to Anshooman to walk you through a more detailed review of the quarter's financials and our outlook. Anshooman Aga: Thanks, Mark, and good morning, everyone. Please turn to Slide 5 for a summary of our consolidated results for the quarter. Total sales of $751 million and core sales growth of 1.7% were above our guide, driven by notable strength at Environmental & Fueling Solutions with Mobility Tech and Repair Solutions generally performing in line with our expectations. As Mark mentioned in his remarks, adjusted operating profit margin fell short for the quarter, reflecting unfavorable mix and timing of operating expenses within both Mobility Tech and Repair. We expect full year margins to be consistent with our previous guidance. Adjusted EPS was $0.80, up 4% year-over-year. Adjusted free cash flow was below our normal seasonal pattern and prior year. The timing of our semiannual bond interest payment of approximately $19 million was in Q1 this year versus Q2 last year. Additionally, Q1 had an extra payroll run compared to the previous year, along with higher incentive compensation driven by the strong performance in fiscal 2025. We expect several of these timing differences to level out during the year, and we expect free cash flow conversion of around 95%. Turning to our segment results, beginning on Slide 6. Environmental & Fueling Solutions started the year off strong, benefiting from solid industry demand and an innovative product portfolio, driving higher new equipment and aftermarket activity. Total dispenser sales increased low double digits on a global basis, led by strength in North America. We saw notable bookings and sales strength from large national accounts, evidence of stable CapEx budgets. Segment margin was flat at nearly 30%, with volume leverage and ongoing productivity actions offset by less favorable mix. Moving to Mobility Technologies on Slide 7. Core sales declined by about 1% as strong underlying demand for convenience retail technologies was offset by more than a $25 million headwind associated with higher shipments for our Vehicle Identification Solution, or VIS in the prior year. Our commercial pipeline is robust, and we continue to win new business for integrated solutions, including orders for our unified payment point-of-sale and VIS offerings. The consolidated Mobility Technologies segment margin declined 260 basis points, driven by unfavorable mix and higher operating expense. On the OpEx side, we incurred higher R&D expenses in order to accelerate new product launches. At the same time, our cost-out activities are ramping in Q2, giving us momentum for the back half of the year. On the mix side, product and geographic mix impacted margins in Q1, which we expect to recover in Q2 and the balance of the year. When you combine this with stronger volume growth and incremental benefits from our cost initiatives in the second half, we remain on track for solid margin expansion this year. Additionally, the divestiture of Teletrac will be accretive to margin performance for the segment and Vontier overall. Finally, turning to Repair Solutions on Slide 8. Sales performance was in line with our expectations with progress on our growth initiatives successfully offsetting pressure on technicians' discretionary spending. This was most notable in our Tool Storage, Diagnostics and Power Tools categories. Additionally, we are focused on quicker payback tools that improve technicians' productivity. The lower segment margin can be attributed to unfavorable product mix and a discrete bad debt reserve of about $2 million related to delayed collections caused by the implementation of a new financial system. We're making good progress in collections and would expect to recover a majority of this reserve over the next several months. Turning to the balance sheet on Slide 9. Adjusted free cash flow of $28 million was impacted by the working capital items I highlighted earlier. We accelerated share repurchase in the quarter, buying back $70 million given the market dislocation. While we will maintain some flexibility on cash, given an increasingly actionable deal pipeline at current valuations, buybacks remain a very compelling use of cash. To address the $500 million bond maturity at the end of the quarter, we used about $200 million in cash on hand to repay a portion of the bond and issued a new 364-day term loan for the remaining $300 million at a relatively attractive spread. We ended the quarter with over $200 million in cash on the balance sheet and net leverage at 2.4x. Please turn to Slide 10 to discuss our guidance for 2026 and Q2. Beginning with a look at our full year guidance. What is shown here is what our guide would have been prior to the Teletrac divestiture, the impact that divestiture will have on our P&L, landing on our official guide, which includes the removal of Teletrac's results in the last column of this table. Importantly, there are no changes to the underlying fundamentals of our previous guidance, and we are only adjusting our guide to reflect the removal of Teletrac. We are assuming the transaction closes in early June, which means we remove about 7 months of contribution. Following this adjustment, relative to our previous guide, we lose about $110 million in sales, bringing the midpoint of our new range to just over $3 billion. Teletrac has little to no impact on our organic growth, but will be accretive to our margin rate by about 50 basis points. We now expect operating margin to expand by about 130 basis points to approximately 22.5%, which includes the contribution from the $15 million savings initiatives over the balance of the year. On a gross basis, the transaction will be about $0.05 dilutive to EPS for the full year. However, the interest received from the seller's note and the benefit from share buyback offset that EPS headwind, so we leave our full year range unchanged at $3.35 to $3.50. Our outlook for adjusted free cash flow conversion remains at 95%, representing around 15% of sales. Looking at our guide for Q2 on Slide 11, we follow the same format. We expect sales in the range of $730 million to $740 million, with core sales down about 1% at the midpoint, which implies the first half at roughly flat, in line with the initial outlook we outlined for you on the Q4 call. As you may recall, shipment timing of the vehicle identification system in the prior year drove high teens growth in Mobility Tech, along with 11% core growth for overall Vontier. This compare issue starts easing in the third quarter. Margins will begin to accelerate in the second quarter, expanding approximately 80 basis points, reflecting lower operating expenses. EPS will be in the range of $0.78 to $0.81, including a $0.01 headwind from the divestiture. As we highlighted on our last call, the year-over-year organic growth rates will look better in the second half, accounting for first half compare issues at EFS and Mobility Tech and the timing of shipments on projects in backlog, which favor Q3 and Q4. As always, we've included some other modeling assumptions on the right-hand side of the slide, which have also been updated to reflect the divestiture impact on the top line and adjustments still below-the-line items. With that, I'll pass the call back to Mark for his closing comments. Mark Morelli: Thank you, Anshooman. We're encouraged by the start to the year and by the underlying momentum across our most important end markets. I'd like to thank the entire Vontier team for their hard work and dedication to delivering for our customers and each other. As we look ahead, one of the most important evolutions underway at Vontier is how we operate the business. Historically, we've operated largely through individual lines of business. Over the past 2 quarters, we've reorganized significantly from the customer back, streamlining operations, raising the bar on operational excellence and becoming a more integrated enterprise. Today, our go-to-market strategy is deployed around 3 core end markets: convenience retail, fleet and repair. This shift is simplifying how we operate and setting the foundation for greater scale over time. By aligning around our customers, we bring more depth and expertise to enable integrated solutions. We believe this customer-led model strengthens our competitive advantage, improves how we innovate and sell and positions Vontier to deliver more consistent growth, margin expansion and long-term value creation. We believe our connected mobility strategy is the right long-term strategy for Vontier, and we are focused on executing with discipline to convert that strategy into durable top line growth, stronger profitability and greater value for shareholders. We have strong leadership positions in attractive and resilient end markets that offer significant opportunities. That means we need to continue to drive commercial excellence while also maintaining a relentless focus on execution, simplification and disciplined capital allocation. As we do this, we believe we are well positioned to deliver on our commitments and create meaningful long-term shareholder value. With that, operator, please open the line for questions. Operator: [Operator Instructions] And your first question comes from David Raso of Evercore ISI. David Raso: Two questions. One about the mobility mix moving forward and also the use of the proceeds on the divestiture. On the margin mix, can you help us a bit how you're thinking about the various pieces within Mobility, the growth the rest of the year? Just the margin in mobility was a little bit lower than I would have thought. And you mentioned also some costs involved. So maybe if you can help break out that margin decline year-over-year and again, how to think about the mix for the rest of the year? And then lastly, on the repo, the share count for the full year, it looks like maybe you are assuming it depends on the, obviously, share price, but maybe another $75 million, $100 million of repo after the $70 million guide in 2Q. I just want to make sure I'm thinking about that correctly. Anshooman Aga: David, thanks for the question. So for Mobility Tech margins for Q1, there were really 2 items that impacted margins. One was mix and mix really was product, customer and geographic mix played out differently versus our expectations and also historical norms. The second piece is higher R&D expenses in the tune of a couple of million dollars. And this was really accelerated spend on launch of new products. In the prepared remarks, Mark talked about the next-generation FlexPay6 products, which brings a lot of customer benefits that we launched, but also the redesign of some of our printed circuit boards for the memory chip shortage working around that, that drove the higher R&D expense. Coming back to the rest of the year for Mobility Tech, we've already seen in April, the mix normalize back to what we would expect in our historical norms. And also on the OpEx, we're confident that we'll get our $15 million savings. Part of it is obviously in Mobility Tech, and we're seeing traction on some of those saving actions in Q2 as we speak. So we feel pretty comfortable that for the full year, our guide for Vontier is unchanged other than the change for the divestiture of Teletrac. In terms of share buybacks, we've assumed about $150 million of buybacks for the year in the guide. We did $70 million already in Q1. So you can expect majority of the proceeds from the Teletrac divestiture would go towards buybacks at the current share price, buybacks remain extremely attractive from a capital allocation perspective. And additionally, we'll be generating a significant amount of free cash flow for the rest of the year. So that does give us optionality that's not built into the guide. David Raso: Okay. So to be clear, the $150 million, you'll have $140 million done by 2Q. So there isn't much baked into the second half at the moment? Anshooman Aga: Correct. David Raso: I appreciate it. Operator: And your next question comes from Julian Mitchell of Barclays. Julian Mitchell: I just wanted to start with maybe a longer-term question. So if I look at Slide 4, you've done another divestment today alongside a bunch of portfolio changes that you put on Slide 4. But I guess if I look at just the overall kind of history of this since it's spun out, the PE, I think, the first year after the spin was about 13, 14x. Now it's kind of 9 or 10x. Operating margins for the company are about where they were 5 years ago. So just I wondered to what extent the management, the Board are thinking about more radical portfolio options perhaps than shaving off one brand a year, adding another brand? Because certainly, the multiple doesn't seem to be reacting based on the last 5 years to these types of changes. Just wondered, again, the appetite to do something broader. Mark Morelli: Yes. Julian, this is Mark. Thanks for the question. Look, I think the way we've internalized the strategy and the pieces of the portfolio, I think we -- as a good example from the Teletrac one, you get accretive margin, you're left with a growthier space with less spend on R&D and a better drop-through. So I think when you take each piece incrementally, the portfolio is getting stronger. And we constantly look at our strategy. I think it's a step-by-step approach. I think the work we put into Teletrac Navman enabled a good transaction here and a good -- a better positioning for the overall portfolio. And I think we constantly look at the portfolio. We constantly look at what are the next set of actions that we think will drive greater shareholder value. And I think what we've got right now with the connected mobility strategy and a good backdrop with secular tailwinds from the majority of our portfolio here that, that strategy is working, and I think there'll definitely be a payoff as we continue to focus on that and improve the results. Julian Mitchell: Great. And then maybe a short-term one. So I think the operating margins are guided to be up 80 bps or so sequentially, and you have the expansion in Q2 year-on-year as well. Maybe just kind of flesh out how you're thinking about the segment level there, particularly repair, I guess, it looked like some of the headwinds you saw in Q1 in terms of lower price point tools that may be something that persists over the balance of the year just because of consumer wallets and so forth. Anshooman Aga: Thanks, Julian. And that's correct. So when you think of Q2 margins, our overall Vontier margins will be up 80 basis points. 20 basis points of that 80 will be because of the Teletrac divestiture. So core business up 60 basis points. That increase will be driven by Mobility Tech, which will be at somewhere north of 120 basis points in terms of margin expansion. EFS will also have margin expansion, probably 80 basis points or so, maybe a touch higher. And then repair, I expect will be down year-on-year. Just as you mentioned, we're seeing a higher percentage of the portfolio on the lower price point, higher -- quicker payback items being sold. So there will be a little bit of margin pressure that will continue into Q2. That will start easing towards the back half of the year, where some of the mix really coming into Q3, Q4, especially Q4 last year was in line with what we're trending towards. Operator: And your next question comes from Andy Kaplowitz of Citigroup. Andrew Kaplowitz: Mark, just back to Mobility for a minute. I don't think the memory chip shortage under inflation has been getting better, but it sounds like you're comfortable around that issue for Mobility. I just wanted to sort of double-click on that. And then obviously, comps in Mobility get easier. I think last quarter, you mentioned a number of wins though that ramp up in the second half. Is that still the case? So you've got good visibility to ramp up? And maybe do you need DRB to ramp up as well? Mark Morelli: Yes. So Andy, I'll give a little bit of color on the second half ramp. So first of all, the end market mostly tied to convenience retail. And I think our remarks there on the call is pretty resilient, and that certainly helps the Mobility Tech segment as well. And when you look at it, it's not only a good compare or a better compare for second half, our seasonality is definitely the same. Sales at 48% to 52% as that's our historical average. And then good bookings clearly in the quarter were pretty solid. And when we go into April, we're also seeing really good bookings as well. So I think to your point, we're getting better leverage for the second half. And while we over got a little bit better in Q1 on the revenue side, and we've got cost takeout actions in place that will carry through to the second half, we feel pretty good about the setup. Anshooman Aga: Yes. I would just add, as you mentioned, the compare does get easier in the second half. If you go back to the prepared remarks, we had over $25 million headwind in Q1, and it's about the same in Q2 tied to the vehicle identification system, which eases into Q3 and has definitely gone by Q4. Importantly, bookings in Q1 were up 5% on a core basis at a Vontier level. A couple of those were larger projects combined for $15 million and majority of that revenue based on our customer schedule is in the second half. So we are feeling incrementally better for the second half as we continue to book and how our compares also play out. Andrew Kaplowitz: That's helpful color, guys. And then I think you explained the trade-down effect kind of from high oil and gas prices when you were talking about the potential duration of the cycle for C-store CapEx and your EFS growth and your EFS growth in general. But maybe you could give us a bit more color regarding how to think about EFS moving forward. I think growth was even higher than you thought for Q1. Does that higher growth actually continue given C-store behavior such as what you mentioned with 7-Eleven? I think any color would be helpful there. Anshooman Aga: Yes. With EFS, we're very pleased with our team's performance. We remain bullish on a multiyear CapEx cycle that's playing through, and it's really driven by our innovation and our channel strength, which are both reading through. Dispenser shipments were up low double digits in North America, leading the way with especially strong national account bookings that we had in the first quarter. We expect dispensers will continue to play out strong for the year. We also expect strength in the build-out of convenience stores in North America to continue. So overall, we're feeling pretty good about the business in EFS, and we'll continue to see growth in line with what we're projecting for the year. Andrew Kaplowitz: Appreciate the color. Operator: And your next question comes from Joe Ritchie of Goldman Sachs. Luke McCollester: This is Luke McCollester on for Joe. Just curious if you can share any early data points on customer reception from the new outdoor payment terminal. How is this product fit into the broader connected mobility strategy? And is this a replacement cycle product? Or does it expand the addressable market? Mark Morelli: Yes. Luke, this is Mark. So thanks for the questions here. I think one of the things we showed in NACS in October or the fall of last year was unified payment, and this clearly extends our addressable market by providing a payment kit with more capabilities, order at the pump is a great example of that. It is incrementally better than the FlexPay6 that we recently launched and the uptake from our customers has been quite favorable. I think this is an outgrowth of our Invenco acquisition, where we've been able to build off that through integrating that platform. So I think we're seeing this also as an excellent example of the connected mobility strategy at work and differentiation that we can provide through launching new products where we're getting really good uptake from it. Luke McCollester: Got it. Helpful. And then within convenience retail, are you seeing any change in the pace of consolidation activity or capital spending plans there in light of the current geopolitical and macro backdrop? And this consolidation kind of tend to be more of a net positive or net negative? Mark Morelli: Yes. I think consolidation tends to go in our favor. The people that are doing the consolidators is where we have higher share in the marketplace, and they tend to buy up some of the smaller players where we sort of split share in the market. And so we tend to get more out of that as our -- as the folks consolidating in the industry are consolidating off typically our technology platform. There's no real change to that. I think there's been a backdrop of consolidation that's been sort of ongoing, I would say, over the years. and would anticipate -- of course, some of the prices have changed with interest rates and other things are ebbing and flowing. But I think you could just look at it as a long-term trend where there's plenty of opportunity for consolidation over the next 5 years. Anshooman Aga: And on the CapEx trend, keep in mind, while our bookings might be shorter term from a book-to-bill perspective, our customers are really planning out 2 or 3 years in advance. They're going through their site acquisitions, permits, build-outs. So they're really looking out 2 or 3 years from a CapEx plan, and there aren't -- oil price volatility doesn't really change their longer-term CapEx plans. Operator: And your next question comes from Katie Fleischer of Key Capital Markets. Katie Fleischer: Can we talk a little bit about the progress on the internal cost initiatives? I know that R&D is a focus there. So just how to think about incremental savings within that and potential upside kind of balanced against some of those higher R&D costs that you saw in Mobility Tech this quarter? Anshooman Aga: Katie, thanks for the question. We are very confident on the $15 million in-year savings that we guided to last quarter. We're reconfirming that. About $1 million in savings played out in the first quarter. The Q2 number will be $3 million, maybe a little bit higher and then the balance of it coming in the back half of the year. We're already through some of the savings plans, but I think we're progressing really well to our plans. Q1 was a little bit higher in R&D, timing of the launch of some products. We talked about the new FlexPay6 launch, but also the redesign on some of the printed circuit boards related to the memory chip. We're trying to stay ahead of the supply chain issues on memory chips. And as a result, there's some redesign work out there. But again, we're pretty confident in hitting our $15 million in-year savings target for the year. Katie Fleischer: Okay. That's helpful. And then on Matco, when we think about those customers recovering, what's really driving the spend there? Is it just delayed CapEx purchases? Is it more customer activity that's driving higher in days? Just help us think about what it will actually take to see a flow-through of spending from customers in Matco. Mark Morelli: Yes. So Katie, the backdrop on Repair is relatively attractive. The car park continues to age. It's about 12.8 years going to 13 years. So a lot more used cars out there in the market changing hands. That's good for Repair. The complexity for Repair is good. And the demand for tech and the wages are also strong. So we know from last year, actually, shop visits were up. So we -- that's a great underlying backdrop for Repair. I think the issue that has been underfoot is that the consumer has represented the working class for the shop technicians that buy our tools has had a harder time with their pocketbook. But the areas that we're getting traction is in the areas of diagnostics and toolboxes, and we had a good run of that in the quarter, which is indicative there can be strength there. And then also more value-added items where they can get more productivity. The technician gets paid based on a standard hour of work if they can be more productive and we say, well, how does the toolbox help with these are these productivity cards that help them on the job site. And so those type things, there's good payback for them. And as we continue to introduce and be more effective at selling those kind of things, even in a fairly rough backdrop, then we can have decent performance out of Matco. Operator: The next question comes from Andrew Obin of Bank of America. David Ridley-Lane: This is David Ridley-Lane on for Andrew Obin. Just sort of thinking about the full year guide here, did your expectations on Mobility Tech, have they shifted a little bit? What are you thinking for organic growth for that segment for the year? Anshooman Aga: Yes. Mobility Tech, their growth for the year will be low to mid-single digits versus the mid-single digits we said, but it's really on lower intercompany sales. If you look last quarter, we guided to north of $90 million of intercompany sales, and we dropped that down to $80 million. Part of it was every year, you update the transfer price, and we did that in Q1, where the transfer price intersegment came down a little bit, and then there's a little bit of mix between FlexPay4 and FlexPay6 products also that we updated for. So the underlying core business, no change to that. David Ridley-Lane: Okay. And I'm surprised I'm going to be the first person asked this, but the changes to Section 232 tariffs, IEEPA tariffs, can you just give us around the world on what the impact of Vontier is going to be inside 2026 as you see it? Anshooman Aga: Yes. The tariff remains a very dynamic environment. And there's -- we're continuously evaluating both where we are the importer of record and where our suppliers are the importer of record. We also are taking into account other dynamics that are playing out, for example, the memory chip pricing, oil and gas price and the impact on transportation costs, transportation routes. So net of all of this, while a lot of pluses and minuses, puts and takes, there's no material change to our view for the year, just playing out on aggregate as we'd expected. David Ridley-Lane: Got it. And just since it's been mentioned a few times on the conference call, can you quantify just in broad brush strokes, sort of memory chips like 1% of your total cost? Or is that -- do you have that number handy by any chance? Anshooman Aga: Yes, I'll give you last year's price or cost on memory chips because I think that's a little bit easier. The market is pretty dynamic. We -- it's in the mid- to high single-digit million dollars. So it's not material from an overall cost perspective, but it's -- every cost we control and manage to the best of our ability. David Ridley-Lane: I know there's -- when you have a small item that's doubling or tripling or quadrupling in price, it sometimes catch you up. Operator: And your next question comes from Rob Mason of Baird. Robert Mason: I wanted to see if you could just relative to the second quarter expectations on core growth in the down 1%. Kind of discuss how you think that may play out across the segments? Anshooman Aga: Yes. The EFS business will continue to grow. We expect that will be up low single digits for the quarter. Mobility Tech will be down low to mid-single digits on the compare issue. Just keep in mind the $25 million in shipments for the vehicle identification system order last year, both in Q1 and Q2. And then on Repair Solutions, we expect there will be also low single-digit growth, maybe low to mid-single-digit growth for the quarter in Repair. Robert Mason: Very good. Just a follow-up. Mark, just any quick thoughts on the decision to retain a minority stake in the telematics business and how we should think about how that plays out in the future as well? Mark Morelli: Yes. Thanks for that question, Rob. Look, we're pleased on the transaction. It's the result of a multiyear turnaround, launching a new product technology into the space. I think we're getting real momentum in that space. I think retaining a minority ownership there also gives us some upside on the trajectory they're on. They ended the year with strong bookings. They got past the 3G to 4G transition in Australia, which was a big headwind for them as well, and that's now in the clear. So we're optimistic also with more focus with the new owner and our partial ownership here and legacy knowledge of that business that we can unlock further value. Operator: Thank you. And there are no further questions at this time. I'd now like to turn the call back over to Mark Morelli, Chief Executive Officer, for closing comments. Mark Morelli: Yes. Thanks again for joining us on the call today. We're off to a solid start in '26. We're confident we can deliver above-market growth and in our ability to drive margin expansion and free cash flow. We're proactively managing the portfolio and staying disciplined on capital allocation, all through the lens of creating shareholder value. We appreciate your continued interest in Vontier and look forward to engaging with many of you over the next several weeks. Have a great day. Operator: Ladies and gentlemen, this concludes today's conference. We thank you for participating and ask that you please disconnect your lines.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Jumia's Results Conference Call for the First Quarter of 2026. [Operator Instructions] With us today are Francis Dufay, CEO of Jumia; and Antoine Maillet-Mezeray, Executive Vice President, Finance and Operations. We'll start by covering the safe harbor. We would like to remind you that our discussions today will include forward-looking statements. Actual results may differ materially from those indicated in the forward-looking statements. Moreover, these forward-looking statements may speak only to our expectations as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the risk factors that could cause actual results to differ from the forward-looking statements expressed today, please see the Risk Factors section of our annual report on Form 20-F as published on February 24, 2026, as well as our other submissions with the SEC. In addition, on this call, we will refer to certain financial measures not reported in accordance with IFRS. You can find reconciliations of these non-IFRS financial measures to the corresponding IFRS financial measures in our earnings press release, which is available on our Investor Relations website. With that, I will hand the call over to Francis. Francis Dufay: Good morning, everyone, and thank you for joining Jumia's first quarter 2026 earnings call. 2025 was the year we demonstrated the resilience and scalability of our model and '26 is the year we plan to demonstrate our path to profitability. Q1 '26 showed that our momentum towards profitability is continuing and in several important ways, accelerating. Over the past few years, Jumia has been building an e-commerce model designed specifically for Africa, adapted to the unique structural supply, logistical and consumer realities of our markets. In 2025, we proved that this model delivers scale with improving economics and Q1 '26 confirms that the flywheel is turning. This foundation drove our strong operating momentum in the first quarter. GMV grew 32% year-over-year adjusted for perimeter effects. Growth was broad-based across our core markets, reflecting the continued strengthening of our marketplace fundamentals and efficient execution. Profitability metrics continue to move in the right direction. Adjusted EBITDA loss narrowed to $10.7 million from $15.7 million in Q1 '25. The business absorbed higher volumes with increasing efficiency while maintaining a disciplined approach on costs. Excluding the onetime costs related to our Algeria exit in February '26, adjusted EBITDA loss would have been $9.7 million, reflecting an underlying improvement of 38% year-over-year in our core business. Based on the progress we made in '25 and the momentum continuing into Q1 '26, we remain focused on achieving our target of adjusted EBITDA breakeven and positive cash flow in the fourth quarter of '26 and delivering full year profitability and positive cash flow in '27. I should also note that we are monitoring the broader macro environment, including cost increases in memory chips and the ongoing geopolitical tensions in the Middle East as well as the potential effects on global supply chain, shipping costs and commodity prices. While we have observed limited impact on our business to date, we remain attentive to downstream risks, including potential pressure on smartphone components availability and transport costs. We believe the resilience of our model and the diversity of our supplier base positions us well to navigate this uncertain environment. Notwithstanding these external matters, we reiterate our guidance for 2026. Let me walk you through the key highlights of the quarter. Usage trends remain strong across our platform. Adjusted for perimeter effects, physical goods orders grew 31% year-over-year, driven by expanding in-country geographic coverage, improved assortment and sustained consumer demand. Our focus remains clearly on physical goods, which accounted for nearly all orders and GMV this quarter. Digital transactions through the JumiaPay app now represent a residual share of our orders as we continue to prioritize transactions with stronger economics. Relatedly, TPV and Jumia Payments gateway transactions have become less meaningful as indicators of our operating performance and effective as of the first quarter of '26, we will discontinue the quarterly disclosure of these KPIs. Adjusting for perimeter effects, quarterly active customers increased 25% year-over-year, reflecting continued traction in both acquisition and retention. Repeat behavior continued to improve with 47% of new customers from Q4 '25 making a repeat purchase within 90 days, up from 45% in Q4 '24. Demand was broad-based across electronics, home & living, fashion and beauty and consistent across most countries, reflecting a similar quality of execution and inputs across our markets. Adjusted for perimeter effects, GMV grew 32% year-over-year in reported currency. Average order value for physical goods increased to $36 from $35 in Q1 '25. Revenue totaled $50.6 million, up 39% year-over-year, driven by higher usage and improved monetization. First-party sales represented 46% of total revenue, supported by continued strength from international partnerships, including Starlink in Nigeria and Kenya. Now turning to profitability. The progress made over the past 3 years continues to translate into measurable operating leverage. Cost improvements across general and administrative, technology and fulfillment are structural. In addition, we renegotiated third-party logistics contracts in February and March and implemented increases in commissions and take rates across most countries in mid-January '26. This reflects the scale of our platform and improved service levels delivered to sellers. Importantly, these commission increases had limited impact on growth, validating our strategy of progressive monetization increases on the back of greater volumes and better seller experience. We also drove meaningful growth in higher-margin revenue streams with marketing and advertising revenue up 44% year-over-year and value-added services revenue nearly tripling, which both reflect improved platform monetization. These changes are consistent across markets and reflect stronger marketplace fundamentals. Fulfillment cost per order was $2.06, flat year-over-year on a reported basis or down 10% year-over-year on a constant currency basis. This reflects productivity gains and economies of scale in fulfillment operations, increased call center automation and improved logistics partner rates. Most fulfillment operating expenses are incurred in local markets and denominated in local currencies. Technology and content expenses declined 8% year-over-year, reflecting ongoing headcount optimization, automation, platform simplification and the benefit of renegotiated seller agreements, including cloud infrastructure. As a result, adjusted EBITDA loss narrowed to $10.7 million from $15.7 million in Q1 '25. Loss before income tax was $17.8 million, an 8% increase year-over-year or 21% decline on a constant currency basis, primarily reflecting noncash foreign exchange losses. Quarterly cash burn increased to $15.3 million in Q1 '26 compared to $4.7 million in Q4 '25. The shift from the previous quarter is consistent with typical seasonal dynamics. This compares favorably to the $23.2 million decrease in liquidity in Q1 '25, demonstrating the improvement in our financial trajectory. Now turning to operational highlights and execution at the country level. Q1 '26 demonstrated continued execution strength across our markets. Supply fundamentals remain solid with improvements in both local and international sourcing. Growth was supported by strong performance across multiple categories with fashion and beauty among the top contributors to items sold growth year-over-year and with international items continuing to gain share. Efficient marketing deployment, including CRM, paid online, SEO channels, supported customer acquisition at attractive unit economics. In the first quarter, we sold 4.9 million gross items internationally, up 87% year-over-year adjusted for perimeter effects. This reflects the continued scaling of our Chinese seller base as well as growing volumes from our supply base from affordable fashion in Turkey. Operationally, we continue to extend our reach beyond major urban centers. Orders from upcountry regions accounted for 62% of total volumes, up from 58% in the prior year quarter, both adjusted for perimeter effects. These regions are delivering strong growth while benefiting from a cost structure that scales efficiently with volume. In secondary cities, we are addressing clear customer pain points, including limited product availability and elevated prices from local traders. As a result, our value proposition continues to resonate strongly, driving both adoption and repeat purchase. Now at the country level. Nigeria delivered a strong quarter. Physical goods GMV increased 42% year-over-year. Sustained growth was driven by a broad range of categories with home & living performing particularly strongly alongside continued traction from a country expansion, where a large part of the addressable market remains untapped. We opened over 80 additional pickup stations during the quarter, further extending our delivery network. I should note that Nigeria experienced a significant increase in local fuel prices during March, which created headwinds in our 3PL cost negotiations. However, consumer demand remains sustained and strong. Kenya performed strongly with physical goods GMV up just below 50% year-over-year. Performance was driven by continued strong supply fundamentals and efficient marketing despite similar headwinds to other countries in the phones category. Strong performance in home & living driven by local suppliers and in fashion, driven by international suppliers more than offset the tighter supply in phones. Kenya remains a relatively underpenetrated market for Jumia with vast opportunities up country and we continue to invest in expanding our reach. Ivory Coast growth gradually moderated over the course of the quarter. Physical goods GMV was up 16% year-over-year. Growth was affected by 2 converging headwinds. First, supply disruption in appliances, which is market specific and in smartphones, which is a global dynamic, both felt directly in the market where we have our highest penetration levels. And second, a sharp decline in regulated cocoa farm gate prices down nearly 60% effective in March '26, which reduced the purchasing power of a large share of the upcountry population. Cocoa is the primary export of Ivory Coast and approximately 6 million people depend on it for their livelihoods. This is a meaningful demand side headwind that we expect to persist in the second quarter. However, we remain confident in the fundamentals of our business in Ivory Coast, where we hold a very strong position with a trusted brand and healthy monetization. Egypt's performance this quarter confirmed sustained recovery. Physical goods GMV grew 3% year-over-year, excluding corporate sales, which were still material in Q1 '25, but has since been deprioritized. Physical goods GMV grew 56% year-over-year, confirming genuine market level recovery. Very strong dynamics on the supply side of our marketplace are driving top line acceleration, supported by improved assortment and seller engagement. Our buy now, pay later offering continued to gain traction with strong penetration in high-value categories. Egypt experienced a fuel price increase in March as well, which we are monitoring. However, core marketplace dynamics remain positive. We are also expanding our delivery network through pickup stations in more remote regions, which are poorly served by physical retail. Ghana delivered an exceptional first quarter with physical goods GMV increasing 142%, driven by a country expansion, the scaling of local marketplace and strong supply from international sellers. Ghana was largely unaffected by the disruption in the electronics segment. Our current focus is to continue building logistics capacity to sustain this rapid expansion with stronger customer experience and cost efficiency. Our other markets portfolio also performed well, collectively delivering 10% physical goods GMV growth. Uganda experienced a nearly 1-week internet blackout during the quarter, temporarily impacting volumes, though the market still delivered growth for the period. In February '26, we completed our exit from Algeria, which represented approximately 2% of GMV in '25. The winddown resulted in total onetime exit costs of approximately $1 million, reflecting employee termination benefits and asset impairment, which were all recognized in our Q1 '26 results. Over the medium to long term, this decision simplifies our footprint and improves operational focus, allowing us to allocate resources more efficiently towards markets with stronger growth and profitability profiles. We have not seen significant changes in our competitive environment in Q1 '26. The softening of competitive intensity trends observed in the second half of '25 has continued with competitive intensity remaining subdued across our core markets. The recent disruption of air freight going through the Middle East is expected to create headwinds for non-resident platforms that rely on direct international shipping, contributing to a more level playing field for locally embedded operators like Jumia. Most of our supply comes via sea freight, which was not impacted. We are also seeing increased regulatory scrutiny on cross-border platforms across several of our markets, further reinforcing this dynamic. We are navigating an international environment that is evolving quickly with 2 main developments having the potential to impact our business. First, the memory chips and CPU price increases. We saw a delayed impact on entry-level phone prices and the availability of components for products like smart TVs taking place gradually over Q1. Phone prices increased by approximately 20% between late '25 and early April. We do not see this as a fundamental long-term shift, but it is impacting our business in the near term as supply chains reorganize. Distributors remain temporarily reluctant to release fresh inventory, while prices may increase further and older, cheaper inventory in some markets is still temporarily competing with our more recent supply. We are mitigating this by diversifying our supplier base for smartphones and scaling our marketplace across both local and international sellers. Second, the war in the Middle East. The most immediate impact was the disruption of air freight through the UAE from Asia, which affected some smartphone distributors. Supply routes have since reorganized through other hubs. There are also delayed effects. Disruption to helium supplies creates additional uncertainty for chip production and the majority of our markets have seen fuel prices begin to rise from March, which is expected to weigh on local logistics costs, particularly for middle-mile trucking operations run by our local partners. The impact on our Q1 P&L has been limited with extra costs primarily in Nigeria. If high fuel prices persist, we should expect greater pressure in Q2, potentially partially offsetting the savings from our 3PL rates renegotiations. That said, our strategy of building pickup stations throughout countries is very helpful in this regard as it means that we have already decorrelated a significant share of our delivery costs from fuel prices. In particular, 74% of our ship packages are fulfilled through pickup stations rather than door delivery in Q1 '26, up from 67% in Q1 '25, both adjusted for perimeter effects. We have also taken steps to electrify our last-mile delivery fleet in Uganda and we are looking to replicate this successful pilot in more countries as we continue to reduce our dependence on fuel in logistics operations. '25 was the year when we showed that our business model is on the right track. It delivered growth and improved economics at the same time. '26 is the year when we intend to show that this model will take us to profitability. In this regard, Q1 is a strong data point that is consistent with Q4 '25 trends. We see sustained growth despite an uncertain environment, continued operational leverage and improved unit economics across the whole P&L, resulting in significantly reduced losses. We are committed to delivering trajectory to breakeven by chasing more scale in a disciplined way, improving operational execution and further streamlining our fixed cost base. While we are currently navigating an uncertain international environment, we believe that our business fundamentals, which were rebuilt from '22 to '25, mostly in much tougher times than this are strong. We do expect some temporary disruption, but it does not change our midterm profitability targets or our belief in Jumia's long-term opportunity for growth. With that, I will now turn the call over to Antoine to walk you through the financials in more details. Antoine Maillet-Mezeray: Thank you, Francis, and thank you, everyone, for joining us today. I will now walk you through our financial performance for the first quarter. Starting with revenue. First quarter revenue reached $50.6 million, up 39% year-over-year or up 28% on a constant currency basis. Results reflect sustained customer demand and consistent execution across our platform. Marketplace revenue for the first quarter totaled USD 27 million, up 50% year-over-year and up 35% on a constant currency basis. Third-party sales were USD 23.2 million, up 45% year-over-year or up 31% on a constant currency basis. Growth was driven by solid performance in the marketplace, including healthy usage trends and higher effective take rates. Marketing and advertising revenue was USD 2.2 million, up 44% year-over-year or up 31% on a constant currency basis. The improvement was driven by continued growth in sponsored products, supported by strong tools rolled out in mid-2025 that increased seller adoption, improved return on ad spend and drove greater density and competition on our marketplace. With advertising revenue currently representing roughly 1% of GMV as we are improving this figure, we see meaningful opportunity to scale this profitable source of revenue. Value-added services revenue was USD 1.7 million in the first quarter of 2026, compared to USD 0.6 million in the first quarter of 2025, driven by strong growth in warehousing fees, reflecting higher volumes flowing through our storage infrastructure, largely driven by demand from Chinese sellers and improved monetization of our warehousing services. Revenue from first-party sales was USD 23.1 million, up 30% year-over-year or up 21% year-over-year on a constant currency basis, driven by strong momentum with key international brands. Turning to gross profit. First quarter gross profit was USD 29.4 million, up 48% year-over-year or up 33% year-over-year on a constant currency basis. Gross profit margin as a percentage of GMV increased by 160 bps to 13.9% for the quarter compared to 12.3% in the first quarter of 2025, reflecting continued progress in marketplace monetization. As we enter 2026, we implemented broad-based increases in commissions across most countries, leveraging the scale and improved service levels we have built with sellers. Q1 2026 was already tracking the expected impact with gross profit margin expanding by 160 bps year-over-year, marketing and advertising revenue up 24% and value-added services revenue nearly tripling. We expect these trends to continue supporting gross profit growth going forward. Now moving to expenses. We continue to see the benefits of our cost initiatives in the first quarter with additional improvements expected to materialize over the coming quarters. Fulfillment expense for the first quarter was USD 12.2 million, up 29% year-over-year and up 17% in constant currency, primarily due to higher volumes. Fulfillment expense per order, excluding JumiaPay app orders, was $2.06, flat year-over-year or down 10% year-over-year on a constant currency basis, reflecting productivity gains and economies of scale in fulfillment operations, increased call center automation and improved logistics partner rates. Sales and advertising expense was USD 5.1 million for the first quarter, up 64% year-over-year and up 54% in constant currency. We view this increase positively. We are scaling high ROI marketing investment on the back of stronger product fundamentals, improved quality of service and higher platform reliability, driving not only top line growth, but also better unit economics as higher volumes and improved customer retention contribute directly to operating leverage and margin improvement. Technology and content expense was $8.9 million for the first quarter, representing a decrease of 8% year-over-year or a decrease of 10% on a constant currency basis, driven primarily by continued headcount optimization and ongoing renegotiated seller contracts. First quarter G&A expense, excluding share-based compensation expense, was $16.8 million, up 4% year-over-year and down 3% on a constant currency basis. The year-over-year increase was primarily driven by staff costs with general and administrative expense, excluding share-based compensation expense, which increased by 16% to USD 9.1 million, driven by approximately USD 0.8 million in onetime termination benefits related to our Algeria exit and the appreciation of local currencies against the U.S. dollar compared to the first quarter of 2025. We continue to streamline the organization. The total headcount has declined by 8% since December 31, 2024, with just over 1,980 employees on payroll as of March 31, 2026. At the end of the fourth quarter of 2022, when current leadership was installed, we had 4,318 employees. We are actively working to further reduce headcount, continue process automation and leverage AI tools. We expect to reduce our headcount by at least an additional 200 full-time employees over the next 2 quarters. More broadly, AI and automation are becoming meaningful drivers of efficiency across Jumia. We are deploying AI tools across our operations, finance processes, headcount efficiency programs in our technology organization, encompassing cybersecurity monitoring and software development, which supported the net FTE reduction and drove efficiency gains year-over-year. Importantly, AI is also helping us solve problems on the ground. In logistics, it improves routing and reduces failed deliveries. In customer services, it enables faster resolution with fewer agents and in sellers operation, it streamlines onboarding and compliance monitoring. This is not only reducing cost but also improving the quality of service we deliver to customers and sellers, reflecting our ongoing commitment to structural cost efficiency. Turning to profitability, adjusted EBITDA for the quarter was negative $10.7 million or negative $10.9 million on a constant currency basis. Loss before income tax was $17.8 million, an 8% increase year-over-year or 21% decline on a constant currency basis, primarily reflecting noncash foreign exchange losses. Turning to the balance sheet and cash flow. We ended the first quarter with a liquidity position of $62.6 million, including USD 61.5 million in cash and cash equivalents and $1.1 million in term deposits and other financial assets. Our liquidity position decreased by $15.3 million in Q1 2026 compared to a decrease of $23.2 million in Q1 2025. Net cash flow used in operating activities was $12.5 million in the quarter, including a broadly neutral working capital contribution. The improvement reflects the continued strengthening of our marketplace flywheel driven by higher volumes, improved payment flows and stronger bargaining power with large third-party accounts. In summary, we delivered another quarter of solid execution and strong top line growth while continuing to improve cost efficiency. Progress on structural cost reductions, automation and cash discipline reinforces our confidence in meeting our near-term objectives and moving closer to profitability. Looking ahead, we remain focused on operational discipline, margin expansion and prudent and informed capital allocation, positioning Jumia for sustainable growth and long-term value creation. I now turn the call back over to Francis for a discussion of our updated guidance. Francis Dufay: Thank you, Antoine. Let me now turn to our expectations for 2026. Our focus for '26 remains on accelerating growth, driving further operating efficiency and continuing our progress towards profitability. We are seeing continued strong momentum validated by our Q1 results, which give us confidence in reaffirming our full year '26 outlook. We are navigating an evolving international environment. While we expect some temporary disruption from memory chips and CPU price pressures and the ongoing conflict in the Middle East, our business fundamentals are strong. Our Q1 '26 results demonstrate continued execution and we have not changed our midterm profitability targets or our belief in Jumia's long-term opportunity for growth. For the full year '26, we anticipate GMV to grow between 27% and 32% year-over-year adjusted for perimeter effects. On profitability, we expect adjusted EBITDA to be in the range of negative $25 million to negative $30 million. We confirm our strategic goal to achieve breakeven on an adjusted EBITDA basis and positive cash flow in the fourth quarter of '26 and to deliver full year profitability and positive cash flow in '27. Looking specifically at the second quarter, GMV is projected to grow between 27% and 32% year-over-year adjusted for perimeter effects. Thank you for your attention. We will now be happy to take your questions. Operator: [Operator Instructions] Your first question for today is from Jack Halpert with Cantor Fitzgerald. John Halpert: I just have 2, please. So on the memory chip inflation, are you maybe able to quantify this at all in terms of the impact in the quarter? And maybe how much of this has been resolved already versus expected to continue in 2Q and beyond? And just is it more about consumers like deferring purchases trading down? Or is it more of a supply availability issue? That's the first question. And then the second question, just on the AI efficiency you guys mentioned and I think the planned 200 reduction in headcount. First, just how much of this headcount reduction is tied to the Algeria exit, if at all? And then maybe on the AI side, what are a few examples of areas you're seeing the most efficiency in the business from AI currently? Francis Dufay: Let me take the 2 questions and Antoine will also comment on the AI impact across our business. Starting with memory chips, CPU prices inflation. So to quantify the impact, you can look at our presentation where we show the share of smartphones category in our mix. You'll see that the whole smartphones category, I mean, is directionally roughly 10% of our sales in GMV. This is usually a category with lower unique contribution. It's lower margins than, let's say, fashion, for example. So it definitely has -- I mean, it's not 10% of our gross profit, as you can imagine. It's not the whole category that's in danger. Obviously, it can impact the growth of the category and it has in the first quarter. It's likely to continue in the second quarter. But we're not talking of a major impact over the whole top line of Jumia, okay? It's something that we have to flag because it's global trends and it's relevant for our business, but we're talking impact on a fraction of our total business and it will not wipe out like half of the sales, obviously. It's limited. And most importantly, we see it as temporary. The timing here is that we had delayed impact really. A lot of people asked us questions, sorry, late 2025 and in the first month of '26 and really not much was changing on the market at this time. And then prices -- the price increase of directionally 20% that we've mentioned on entry-level smartphones was mostly felt in the month of March across key countries. So that's directionally what happened. We believe it's a matter of timing. I mean we're used to those kind of supply disruptions and market reorganizations. So it doesn't last forever, but we know that for a couple of months, supply may be disrupted. Some brands may be doing better and some brands may be more disrupted, which we've seen in the market. Some brands will be running out of stocks. Some brands will still be available with sometimes lower price increases. For example, we see that Samsung has had lower price increases because they have much better integration of the whole supply chain. But basically, we see it as temporary disruption as the supply chain reorganizes. And when it comes to consumer impact that you were asking, we see a mix of both, right? We see a mix of, of course, prices increasing, so consumers are trading down. When people are still buying smartphones, that will never change, but they are buying lower specs with the same amount of money in their pocket. And on the other hand, we also see supply -- I mean, pure supply availability issues on very specific brands in very specific markets. So as we mentioned in the -- earlier in the call, we've been more impacted in the Ivory Coast, for example, than in Kenya in terms of pure supply availability. So all of that is having an impact, some level of impact, but we see it as clearly temporary. It's not -- I mean, it's not a long-term challenge. We will keep on selling smartphones and the market will reorganize. And what matters is that we have access to the best supply, the best prices and our distribution is a huge advantage when it comes to selling smartphones across Africa. And then to your second question about headcount, the 200 target is not tied to Algeria. So most of the impact on Algeria is already behind us. So the 200 headcount reduction that we mentioned has nothing to do with the exit from Algeria. Antoine, do you want to comment on the use of AI across our team? Antoine Maillet-Mezeray: Yes, I can take this one. Thank you. Obviously, we're using AI in tech, be it in cybersecurity or coding. We are able to be much, much more productive thanks to the different tools that we are using. We pay a lot of attention to be agnostic in terms of tools so that we don't end up with 1 or 2 suppliers that will change pricing policy overnight. But we are going much further than pure tech. We're using AI in accounting, for instance, to automate bank reconciliations. If you want a very pragmatic example, we're also using AI in HR. Basically, we have a lot of database, which are very structured and ready to be used consumed by AI, allowing us to produce smarter reporting in a much faster way and being able to share the information across our very large footprint, resulting in better efficiency. Operator: Your next question is from Brad Erickson with RBC Capital Markets. Bradley Erickson: Just a couple of follow-ups on that first question. I guess with maintaining the full year guide, it looks like maybe a little bit of deceleration built in there through the year. I guess would you say that outlook kind of reflects this idea that some of these headwinds you're talking about are sort of dynamic and adjusting and reflected in Q2, but then sort of stabilize through the year? Or is there any contemplation in the range that maybe things get worse? Francis Dufay: Well, in the current international environment, if you -- Brad, if you know for sure what's going to happen, please tell me. We could make a lot of money. Well, more seriously, we acknowledged some level of uncertainty in the international environment with very specific aspects that can have a negative impact on our P&L. We mentioned chip prices and fuel prices. We remain confident in the range that we have given as guidance for the full year and for the second quarter. It accounts -- I mean, it covers, it includes some level of uncertainty. But I think it reflects -- I mean, the fact that we stabilized that range reflects our opinion that most of the disruption we're seeing is temporary. So we're seeing real headwinds like the demand side headwinds in the Ivory Coast due to cocoa prices is real and can be felt on the ground. Smartphone price increases and supply disruption is real and can be felt on the markets. But we all see that as quite temporary and really not disrupting the fundamentals of our business, neither the midterm or long-term opportunity. So we -- and we're also seeing continued strength in the trends in several countries, especially Nigeria, which is still growing over 40%; Ghana, which is growing over 100%. So in short, those headwinds and that level of uncertainty is not structurally challenging our business and it's not something we expect for the long run. So this range of 27% to 32% top line growth that we're giving for the second quarter as well is our best assessment in the current environment based on the early results of the quarter that we're already seeing and reflects the level of confidence in our business model. Bradley Erickson: Got it. And then you called out marketing and being a strong point in your prepared remarks. I guess just within your outlook, how much kind of flexibility do you think you have on marketing given some of these other headwinds you're talking about? And I guess how much kind of like offense do you feel like you can play here in 2026 in terms of putting your foot down on marketing? Or is it still fairly measured given how some of the macro factors you're talking about? Just kind of the upside, downside considerations there with marketing spend. Francis Dufay: Yes. I think 3 things on the marketing side. So first of all, I think we remain at spend ratios that are very reasonable for an e-commerce company of our size, right? Our ratio of spend is slightly lower than much, much bigger peers in emerging markets, which shows frugality and efficiency in that field. So we were very -- I mean we're confident in our ability to spend very efficiently our marketing budget and driving strong returns. Second, we still have major improvements coming over the year in terms of efficiency and the better use of our marketing channels, especially online. And third, we are very reactive as well. A large part of those budgets are spent on online channels where it's very easy to pilot on a monthly, weekly, daily basis. So we are able to make decisions if needed, if we see lower traction in a given market. We're very dynamic in reallocating budgets when we need to on a daily or weekly basis. At this stage, we believe we still have -- I mean we do have sufficient traction and that justifies the amount that we're spending. But we are very flexible and we can be extremely reactive if we see different trends. Bradley Erickson: Got it. And then one last one. Just when you think about the journey to cash flow positive in the next year, you talked about the headcount reduction here in the next few quarters. Besides that, just what are kind of some of the major pain points on reaching that goal that you still -- you feel like you still have to get through? Francis Dufay: You mean the goal of cash flow positive? Bradley Erickson: Correct. Francis Dufay: I would not talk about pain points. I mean I'll let Antoine comment as well, but I think the path is pretty clear, right? I mean if you look at our numbers, now it's just -- it's not just us talking. You have very clear verifiable numbers showing that we're able to scale, we're able to improve the unit economics, get operating leverage and further reduce the fixed costs. So that's a very clear trajectory that takes us to breakeven. It's mostly an execution game. It's mostly an execution game. I would not say we have blockers or pain points. We know very much what we're working on. We need to keep on scaling the top line and keep on delivering those improvements in the unit economics and further reducing in absolute terms of fixed costs. I think you can see a clear trajectory in the last 2 quarters. It's extremely consistent. It's all about execution unless there would be a major macro disruption that we're not seeing at this stage, it's really about execution. Operator: Your next question for today is from Ryan Sigdahl with Craig-Hallum. Ryan Sigdahl: Very nice quarter and execution. Laundry list of, let's call them, crosswinds, some headwinds in Q1 into Q2. Outside of those, it feels like the business is actually outperforming because you reiterated the guide, you outperformed in Q1. Q2 guide is in line despite kind of all of those challenges. So I guess trying to take a step back and maybe normalizing for a lot of those outside factors, how you feel about the progress thus far in the year internally? Francis Dufay: Yes. Thanks, Ryan, for putting it this way. I mean we -- Antoine and I are very deeply in the business and we -- it's sometimes good to step back and realize the progress. I mean we have a tendency to look more at the problems than the successes, but it's how we managed to push it forward. But yes, I think there are very clear bright side this quarter. It's very clear and that's what you see in our presentation on the operating leverage. And we see that we, again, this quarter, just like in the fourth quarter of '25, we're able to show significant GMV growth. So the business model is working while clearly improving all the unit economics. So 31% GMV growth that translates into a significant improvement of 64% of all gross profit after fulfillment and marketing costs. So that's real operating leverage and we're able to further reduce our fixed cost, thanks to pretty hard work on tech specifically this quarter, but also a lot happening in G&A that will pay off in the coming quarters. You see the 1/3 32% improvement in adjusted EBITDA. So I think the bright -- I mean, the key message of this quarter is we're able to show very consistent improvement after Q4 with significant growth that's sustained in spite of the environment and continued progress on the unit economics and fixed costs. And we expect that to continue. There's no reason why the trend should change in the coming quarters. Ryan Sigdahl: Very good. We've noticed -- you mentioned Nigeria strength. We've noticed an expanded pickup station footprint there, particularly in secondary cities. Can you talk about Nigeria, but also you mentioned it in Kenya and others, but kind of the upcountry expansion, how you think about that strategy with pickup stations? And then if maybe that strategy has evolved or changed in recent kind of months as you guys have rightsized the cost structure, infrastructure and overall company? Francis Dufay: So I'll talk about Nigeria right afterwards. But overall, across countries, we keep on expanding our reach. So basically opening new pickup stations in new cities that we're not covering or densifying the network in existing bigger cities. This is a very important component of our growth plan because it basically increases the addressable market, right? We are building our distribution network and partnering with local entrepreneurs. And if we don't have -- I mean, if we do not build the distribution network in a given city, it means that city is outside of our addressable market. So by expanding this network of pickup stations, we are increasing our addressable market, which is arguably one of the easiest and cheapest ways to grow our top line. This is happening across all countries, but Nigeria is the most striking example. A few months back, Nigeria, we are still covering about 1/3 of the addressable market of the population. If we look at the cities where we had established distribution, the total population was about 1/3 of total population, which is massive room for improvement. In our more mature markets, we're close to 60% in Ivory Coast, for example. So it gives you an idea of the potential that's still untapped in a country like Nigeria. So we're very -- I mean, we're happy about the growth in Nigeria. We believe we can still get more than that. The growth in Nigeria is largely driven by up country. So distribution expansion, that's a big driver. But we're also seeing very favorable trends across categories and supplies. We mentioned home & living as a strong category this quarter in Nigeria. We're seeing strong engagement on our local marketplace. We're seeing increased supply from international vendors, mostly from China, but also from Turkey in Nigeria. So I think we have lots of tailwinds in Nigeria and the hard work of the past couple of years is really paying off, which is critically important in a market where, first of all, there's so much potential to address. Second, the competitive intensity has reduced around us. And third and quite importantly, it's a market where we have good unit economics after -- especially after the devaluations over the past few years, local unit costs are fairly low and while it's quite profitable to scale in Nigeria to put it this way. Operator: Your next question is from Fawne Jiang with Benchmark Company. Yanfang Jiang: First of all, your international seller growth appeared very strong. Just wonder how should we think about the merchant ramp-up and the typical lead time from onboarding to more meaningful GMV contribution, particularly considering you are opening a new sorting center [indiscernible] and how would that potentially impact your take rate going forward? Francis Dufay: Yes. So that's an important question, guess -- so how can I put it? So the growth we're seeing today in volumes items sold and the whole business from international sellers is actually the result of the last 3 to 4 years of work. Typically, the timelines when a supply -- when a new Chinese vendor is onboarded, we expect meaningful contribution after more than a year, sometimes 2 years or more to deliver volumes and margins. It's because we onboard vendors who don't always -- I mean, don't know very well our markets. They need to test the waters first, they send small supply to the countries. And then gradually, they will scale their inventory in our most important countries. So this process does take time. So they learn the market and they commit more and more working cap and inventory to our countries. And so what you see today is really the result of like 3 to 4 years of real hard work. What we see on the ground in China, I mean, since the whole tariff thing last year, we've seen that strong -- I mean, much stronger enthusiasm and strong engagement with Chinese vendors. We've seen more and more vendors willing to join our platform and sell on Jumia. The trend has been very well maintained over the past quarters and consistent now. And this increased -- this increased volumes of onboarding of vendors is going to reflect over time, but it's not yet fully felt in the numbers. So the good news here is that we really have a pipeline of vendors and the pipeline of supply coming to Africa that will get -- should get stronger over time due to the medium- to long-term structural nature of the work we're doing with our Chinese vendors. And in terms of margins, as we mentioned in the past, the rise of international supply is accretive to our margins. These vendors typically operate in categories that have higher -- sorry, gross profit ratios such as fashion, accessories, home & living and so on. They are also much better contributors to our margins when it comes to purchasing advertising services and using our storage services. So at the end of the day, it enables us to get higher monetization from those sellers and from the local marketplace. Yanfang Jiang: Understood. Another, I guess, topic I want to touch upon is actually your fulfillment leverage. You guys continue to show the leverage there. Just given you are going to very high growth momentum, especially in some of the countries, how sustainable is, I think, the fulfillment leverage? Are any logistic capacity constraints or upcoming investment we should be mindful? Francis Dufay: I'll spend some time on fulfillment. It's an important one because it's our biggest cost bucket. So first of all, I mean, we're still seeing some leverage on costs this quarter with the fulfillment cost per order that's declining 10% in local currency and it's almost all local OpEx. So the local currency view is relevant. But we're not happy with the progress, right? In dollars, we're flat year-over-year at $2.1 per gross order. We want to do better than that. So just to set the stage, we're not happy with the progress here, although there is some leverage that visible in local currency. We believe those cost per order should keep on going down going forward. And scale should play in our favor. There can be very specific temporary cases where like very high volumes lead to some level of inefficiency, but that's really not what should happen across countries and over the long run. So looking specifically at the improvements and the leverage we have on that fulfillment cost per order, we have a lot of work that has -- well, that has been ongoing over the past 2 quarters already. On the fulfillment -- so on fulfillment staff cost, which is about 1/3 of the cost here, we have a big push for higher productivity and more automation. We're rolling out at the moment, for example, new tools at the warehouse to increase productivity and tracking of the workforce. So we believe we have some potential to improve there. And on the transport side, which is around 2/3 of the fulfillment staff cost, about 60%. So on transport, which is basically all the money we're paying to our local logistics partners. We have recently implemented a renegotiation of all the fees, I mean, a reduction of all the fees. Some of that will be partly offset by the fuel price increases, which will lead to surcharges in some countries. But over the long run, as prices will normalize, we expect the surcharges to go away. And we are working to improve also the efficiency of our local partners for logistics, so we can renegotiate their fees. So we're working on new tools to make middle-mile trucking more efficient for our partners so we're able to split the savings with them. And this will be operational later this year. So we still have a lot to do and we still have a lot of efficiencies to capture there. It's a lot of hard work, right? We're using more and more AI to make it more efficient in supply chain as well. Part of it depends on tech progress, which we're seeing on the ground and scale should be a tailwind in this regard. Yes, I hope that answers the question. Yanfang Jiang: Yes, that's very helpful. Lastly, more on housekeeping. Can you provide some color on the FX -- latest FX trends for your key countries? Francis Dufay: Yes, Antoine, do you want to take FX? Antoine Maillet-Mezeray: Yes. So you can see that we've had a disconnect between the progress we made on the adjusted EBITDA basis and the net loss before tax. And this was driven by Forex exchange, which was noncash. If you compare to Q1 '25 last year, we had a net FX gain of USD 2.1 million. And this year, we have recorded a loss of $3.5 million. Again, that swing is not cash-based. There is no cash impact. And this reflects the impact of FX swing on intercompany balances that we have between the total holding and the operations. We are working actively on this one to reduce the impact of the Forex by accelerating repatriating cash and other restructuring operations. This was for the finance and accounting part. On the business side, before Francis comments, if you want, we see some impact, but what is important for us is that the movements are not too violent so that our vendors do not hesitate to import in the countries, which has been the case this year. So so far, we are able to handle properly the FX swing that we are seeing. Francis Dufay: Yes. I'll just add briefly on that. We've seen huge swings in FX over the past 4 years across our key countries like Nigeria and Egypt. There's no such thing happening right now. Local currencies have been behaving much more strongly even over the past few months. And as Antoine mentioned, the most important part here is that it's not impacting suppliers' confidence. It's not impacting customers' purchasing power in any significant way and we're not seeing any disruption in the business because of this. Operator: We have reached the end of the question-and-answer session and conference call. You may disconnect your phone lines at this time. Thank you for your participation.
Operator: Good day, everyone, and thank you for participating in today's conference call. I would like to turn the call over to Mr. John Ciroli as he provides some important cautions regarding forward-looking statements and non-GAAP financial measures contained in the earnings materials or made on this call. John, please go ahead. John Ciroli: Thank you, and good day, everyone. Welcome to Montauk Renewables earnings conference call to review the first quarter 2026 financial and operating results and developments. I'm John Ciroli, Chief Legal Officer and Secretary of Montauk. Joining me today are Sean McClain, Montauk's President and Chief Executive Officer, to discuss business developments; and Kevin Van Asdalan, Chief Financial Officer, to discuss our first quarter 2026 financial and operating results. At this time, I would like to direct your attention to our forward-looking disclosure statement. During this call, certain comments we make constitute forward-looking statements, and as such, involve a number of assumptions, risks and uncertainties that could cause the company's actual results or performance to differ materially from those expressed in or implied by such forward-looking statements. These risk factors and uncertainties are detailed in Montauk Renewables' SEC filings. Our remarks today may also include non-GAAP financial measures. We present EBITDA and adjusted EBITDA metrics because we believe the measures assist investors in analyzing our performance across reporting periods on a consistent basis excluding items that we do not believe are indicative of our core operating performance. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures can be found in our slide presentation and our first quarter 2026 earnings press release and Form 10-Q issued and filed on May 6, 2026. These are available on our website at ir.montaukrenewables.com. After our remarks, we will open the call to investor questions. We ask that you please keep the one question to accommodate as many questions as possible. And with that, I will turn the call over to Sean. Sean McClain: Thank you, John. Good day, everyone, and thank you for joining our call. I am pleased to announce that we have commissioned our Montauk Ag renewables project in Turkey, North Carolina and are producing gas. We expect the production and sale of renewable electricity from our syngas to commence in May 2026 with revenue generation triggered upon the calibration of the sales meter from the interconnection utility. We have operated the full production line as part of the commissioning process and expect to be able to produce our targeted first phase of 47,000 megawatts, and 120,000 recs annually with approximately 50% of our installed reactor capacity. Our capital investment expectation for this first phase of the project remains unchanged at $200 million. We expect a ramp up in production volumes throughout 2026 directly related to additional feedstock collection. Our joint venture, GreenWave continues to address the limited capacity of R&G utilization for transportation by offering third-party RNG volumes, access to exclusive, unique and proprietary transportation pathways. During the first quarter of 2026, GreenWave's matched available dispensing capacity with available third-party R&D volumes, separated RINs and distributed RINs to the partners of GreenWave. We received approximately $1.4 million in separated RINs and distributed from GreenWave in the first quarter of 2026. In April 2026 we sent a letter confirming termination of our contract with European Energy North America, EENA, for the delivery of biogenic carbon dioxide. The termination was due to EENA failure to provide certain contractual assurances and notices related to the construction of their Texas-based methanol facility. We are currently exploring alternative offtake arrangements with interested parties at our [indiscernible] location. The timing of capital expenditures will be [indiscernible] with the finalization of replacement offtake agreements. We continue to anticipate a capital investment of between $30 million and $40 million. While we continue to diversify the company, our production of renewable energy from landfill feedstock remains a priority focus. The U.S. EPA issued the final rules for the 2026 and 2027 renewal fuel standard on March 27, 2026. The 2025 cellulosic volume requirement was reduced from $1.376 billion to $1.210 billion D3 rents with cellulosic waiver credits also having been made available for 2025 compliance. Hinocellulosic biofuel volume requirements for 2026 and 2027 were established at $1.360 billion and $1.430 billion D3 RINs, respectively. These volumes also represent an increase of $60 million and $70 million, respectively, from the preliminary RVO previously issued by the EPA. These volumes reflect the EPA's assessment of expected regeneration capacity and the related pathway and strengths of the end-use demand for CNG LNG transportation fuels derived from biogas. The EPA did not provide reallocations of D3 RINs as part of the 2026 and 2027 RVO in the final rule. This is primarily due to the statutory conditions on cellulosic biofuel volume requirements which do not allow the EPA to set the total applicable volume of cellulosic biofuel at a volume that is greater than the projected volume available, which necessarily excludes carryover cellulosic rents. And with that, I will turn the call over to Kevin. Kevin Van Asdalan: Thank you, Sean. I will be discussing our first quarter 2026 financial and operating results. Please refer to our earnings press release Form 10-Q in the supplemental slides that have been posted to our website for additional information. Our profitability is highly dependent on the market price of environmental attributes, including the market price for RINs. As we sell market a significant portion of our RINs, a decision not to commit the transfer of their low RINs during a period will impact our revenue and operating profit. . We sold all of our 3.9 million RINs generated and available for sale from our 2025 RNG production in the first quarter of 2026 at a realized price of approximately $2.42. We will not be impacted by the EPA making available cellulosic waiver credits from 2025 production. We have entered into commitments to sell approximately 60% of our expected RIN volumes in the 2026 second quarter. Total revenues in the first quarter of 2026 were $46.4 million, an increase of $3.8 million or 9% compared to $42.6 million in the first quarter of 2025. The increase is related to environmental attribute revenue of approximately $4.2 million from RINs sold related to RINs distributed from Green Wave and the RINs related to pathway dispensing. We had no such RINs in the first quarter of 2025. Our first quarter of 2026 RNG volumes sold under fixed floor price contracts decreased approximately 82.1% as compared to first quarter of 2025 as a result of the expiration of fixed-price pathway contracts. Our RNG commodity revenue decreased approximately 49.3%, which was offset by an increase in RINs sold of 25.5%. Total general and administrative expenses were $8 million in the first quarter of 2026, a decrease of $0.7 million or 8.4% compared to $8.7 million in the first quarter of 2025. The decrease was primarily driven by vesting of certain restricted share awards in 2025. Turning to our segment operating metrics. I'll begin by reviewing our renewable natural gas segment. We produced MMBtu during the first quarter of 2026, flat compared to 1.4 million MMBtu during the first quarter of 2025. Our Galveston facility produced 41,000 MMBtu fewer in the first quarter of 2026 compared to the first quarter of 2025 as a result of the landfill host assuming responsibility of wellfield operations and maintenance beginning in the first quarter of 2026. Our [indiscernible] facility produced 43,000 MMBtu more in the first quarter of 2026 compared to the first quarter of 2025 as a result of landfill host well food operational and collection system enhancements. Our Apex facility produced 37,000 MMBtu more in the first quarter of 2026 as compared to the first quarter of 2025 as a result of the June 2025 commissioning of our second Apex facility and increased feedstock gas from improvements we are making to the landfill collection system. Our McCarty facility produced 88,000 MMBtu fewer in the first quarter of 2026 compared to the first quarter of as a result of landfill host well-filled bifurcation and changes to the wellfield collection system. Revenues from the Renewable Natural Gas segment during the first quarter of 2026 were $38.1 million, a decrease of $0.4 million or 1% compared to $38.5 million during the first quarter of 2025. Average commodity pricing for natural gas for the first quarter of 2026 was 38.1% higher than the first quarter of 2025. In the first quarter of 2026, we self marketed 12.4 million RINs, representing a $2.5 million increase or 25.5% compared to 9.9 million RIN self marketed during the first quarter of 2025. Average pricing realized on RIN sales during the first quarter of 2026 was $2.42 compared to $2.46 during the first quarter of 2025, a decrease of 1.6%. This compares to the average D3 RIN index price for the first quarter of 2026 of $2.41 being approximately 0.6% lower than the average D3 RIN index price for the first quarter of 2025 of $2.43. At March 31, 2026, we had approximately $0.4 million MMBtu available for RIN generation, 0.2 million RINs generated but unseparated to 79,000 RINs separated and unsold. At March 31, 2025, we had approximately 0.3 million MMBtu available for RIN generation, 1.5 million RINs generated but unseparated and 3.9 million RINs separated and unsold. Our operating and maintenance expenses for our RNG facilities during the first quarter of 2026 were $14.4 million, an increase of $0.3 million or 1.8% compared to $14.1 million during the first quarter of 2025. Our Rumpke facility operating and maintenance expenses, operating and maintenance expenses increased approximately $0.4 million, primarily related to preventive maintenance media changes. Our Apex facility operating and maintenance expenses increased approximately $0.3 million, primarily related to increased utility expense, which was partially offset by decreased preventative maintenance media changes. Our Itasca site facility operating and maintenance expenses increased approximately $0.2 million, primarily related to wellfield operational enhancements. Our Dowerston facility operating and maintenance expenses decreased approximately $0.6 million, which was primarily related to the timing of maintenance of gas processing equipment and preventative maintenance media changes. We produced approximately 43,000 megawatt hours in renewable electricity during the first quarter of 2026, a decrease of approximately 3,000 megawatt hours or 6.5% compared to 46,000 megawatt hours during the first quarter of 2025. Our PECO facility produced approximately 2,000 megawatt hours fewer in the first quarter of 2026 compared to the first quarter of 2025. The decrease is primarily related to the decommissioning of one of our engines in the second quarter of 2025 due to the shift towards boiler heat digestion process. Our Bowerman facility produced approximately 1,000 megawatt hours fewer in the first quarter of 2026 compared to the first quarter of 2025. The decrease is primarily related to original equipment manufacturer required life cycle maintenance of 1 hour engines beginning in the first quarter of 2026. Revenues from renewable electricity facilities during the first quarter of 2026 were $4.1 million, a decrease of $0.1 million or 0.8% compared to $4.2 million in the first quarter of 2025. The decrease was primarily driven by the decrease in production volumes. Our renewable electricity generation operating and maintenance expenses during the first quarter of 2026 were $4.5 million, an increase of $1.1 million or 33.8% compared to $3.4 million during the first quarter of 2025. The increase is primarily driven by an increase in noncapitalizable costs of $0.8 million at our Montauk Ag renewables project. Our [indiscernible] facility operating and maintenance expenses increased approximately $0.4 million, which was related to the timing of gas processing preventive maintenance. We recorded approximately $4.2 million in the first quarter of 2026 related to the cost of RINs distributed from GreenWave when sold and the cost related to pathway dispensing associated with the dispensing of R&D. There were no such expenses incurred during the first quarter of 2025. During the first quarter of we recorded impairments of $0.4 million, a decrease of $1.6 million compared to $2.0 million in the first quarter of 2025. The decrease primarily relates to the first quarter of 2025 impairment of an R&D development project for which the local utility no longer accepted RNG into its distribution system. We did not record any impairments related to our assessment of future cash flows. Operating loss for the first quarter of 2026 was $1.6 million compared to operating income of $0.4 million in the first quarter of 2025. R&D operating income for the first quarter of 2026 was $8.7 million, a decrease of $1.7 million or 15.7% compared to $10.4 million for the first quarter of 2025. Renewable electricity generation operating loss for the first quarter of 2026 was $2.2 million, an increase of $1.2 million compared to $1 million for the first quarter of 2025. Other income in the first quarter of 2026 was $1.3 million, an increase of $2.5 million compared to the first -- compared to other expenses of $1.2 million in the first quarter of 2025. In the first quarter of 2026, we recorded approximately $3.3 million in income related to our joint venture investment in GreenWave. There was no such income reported during the first quarter of 2025. We received approximately $1.4 million in RINs distributed from GreenWave in the first quarter of 2026, of which approximately $0.4 million remain unsold. We sold approximately 1 million RINs in recorded revenues from those RINs sold of approximately $2.4 million. Additional information on GreenWave can be found in the supplemental slides that have been posted to our website. On March 9, 2026, we entered into a 5-year new security credit facility with a wholly owned subsidiary, Hannon Armstrong Capital LLC, HASI that consists of up to $200 million in senior indebtedness. These proceeds were used to repay all our outstanding debt. We expect to have an additional $45 million in proceeds drawn upon the conclusion of certain engineering review and operational requirements of our Montauk Ag renewables project in North Carolina. As a result of this refinancing in the first quarter of 2026, we recorded debt extinguishment cost of $1 million. We are only required to make interest payments during the first 2 years of the agreement, which matures in March 2031. We expect to work with has in the future to secure additional project-based financing for our current and future development projects. Turning to the balance sheet. On March 31, 2026, $155 million was outstanding on our new security credit facility with [indiscernible]. For the first 3 months of 2026, our capital expenditures were $38.6 million, of which $33.1 million and $1.8 million, respectively, were related to the ongoing development of Montauk Ag Renewables and our Bauerman-RNG facility. We had approximately $19.6 million in capital expenditures included within our accounts payable at March 31, 2026. As of March 31, 2026, we had cash and cash equivalents net of restricted cash of approximately $25.9 million. Our new senior credit facility with [indiscernible] requires us to meet liquidity and have quarterly minimum cash balances as defined in the agreement. We had accounts and other receivables of approximately $5.2 million. We do not believe we have any collectibility issues within our receivables balance. As of March 31, 2026, we held approximately [indiscernible] distributed from GreenWave in inventory on our balance sheet. Adjusted EBITDA for the first quarter of 2026 was $10.8 million, an increase of $2 million or 22.8% compared to adjusted EBITDA of $8.8 million for the first quarter of 2025. EBITDA for the first quarter of 2026 was $9.4 million, an increase of $2.7 million or 40.3% compared to EBITDA of $6.7 million in the first quarter of 2025. Net income for the first quarter of 2026 was $5,000, an increase of $0.5 million as compared to a net loss of $0.5 million for the first quarter of 2025. The difference in effective tax rates between the first quarter of 2026 and the first quarter of 2025, primarily relate to the change in our pretax book loss for the first 3 months of 2026 as compared to the first 3 months of 2025. I'll now turn the call back over to Sean. Sean McClain: Thank you, Kevin. In closing, and though we don't provide guidance as to our internal expectations in the market price of environmental attributes, including the market price of D3 RINs we would like to provide a full year 2026 outlook. We are reaffirming our RNG production volumes to range between $5.8 and $6 million MMBtu with corresponding R&D revenues to range between $175 million and $190 million. We are reaffirming our renewable electricity production volumes to range between 195,000 and 207,000 megawatt hours, with updated corresponding renewable electricity revenues to range between $33 million and $37 million. that reflects our current expectations of production at our Montauk renewables facility in Turkey, North Carolina. And with that, we will pause for any questions. Operator: [Operator Instructions] Our first question comes from Matthew Blair at TPH. Matthew Blair: I was hoping you could talk a little bit about this fixed price contract that appears to have rolled off. And I think there was a mention of that in the release is there any prospects for renewing that contract? And can you say if that contract was above current market rates? Like should we think of that roll off as being dilutive to your ongoing margins? Kevin Van Asdalan: Thanks, Matthew. In short, if you -- I'm going to point you to our operating highlights table within our 10-Q the rolling off of the fixed price contract is consistent with our moving and our ability to find homes for our RNG volumes in the transportation market. It's in concert with a quarter-over-quarter reduction in RINs that we're sharing with counterparties through our pathway. That has come down in the first quarter of 2026 yielding increases in RINs sold in 2026 over 2025. That's sort of a general understanding of a product mix moving away from fixed pricing into a more commodity and merchant availability of RINs generated from the production that we're getting as we are dispensing volumes in the transportation space and retaining more RINs and able to sell more RINs related to the roll-off of those fixed price contracts. Operator: Our next question comes from Betty Zhang at Scotiabank. Y. Zhang: Can you talk about the Montauk ag renewables? It looks like the revenue generation seems to be pushed out by about a month and that's also factored into your annual guidance. Can you just speak to what may have contributed to that? Sean McClain: Yes. Thanks, Betty. The adjustment to the revenue guidance is solely attributed to the timing of the commissioning that was completed at the end of April as opposed to the end of the first quarter with revenue commencement activity starting in May instead of April. So that's the month shift that's reflected in that updated guidance. Operator: Our next question comes from [indiscernible] at UBS. Unknown Analyst: With the North Carolina project coming online and production expected to begin this month. Can you help us think about the ramp profile from here? I know you mentioned in your opening remarks and in the press release that you expect ramp up in production volumes throughout 2026. But can you give us additional color into that? Kevin Van Asdalan: Thanks, Richard. As we've alluded, we have a certain amount of hog spaces that we're targeting to support our production expectations under a first year. We had announced that there were some weather delays on our call in our first -- at the end of the year in March. Some weather delays have delayed some installation of the own arm collection equipment as well as delaying some of our ability to timely assemble our dewatering equipment related to those sort of weather delays in installment of our feedstock collection and dewatering equipment. Our ramp throughout 2026 is contingent upon us getting caught up and meeting some internal expectations associated with our own farm installation related to feedstock collection and transportation to our production facility. Operator: Okay. I'm showing no further questions at this time. I would now like to turn it back to Sean for closing remarks. Sean McClain: Thank you, and thank you for taking the time to join us on the conference call today. We look forward to speaking with you again when we present our second quarter 2026 results. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good afternoon, and welcome to The RMR Group Inc. Fiscal Second Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to Bryan Maher, Senior Vice President. Please go ahead. Bryan Maher: Good afternoon, and thank you for joining The RMR Group Inc.’s fiscal second quarter 2026 conference call. With me on today's call are President and CEO, Adam Portnoy; Chief Operating Officer, Matthew Paul Jordan; and Chief Financial Officer, Matthew Brown. In just a moment, we will provide details about our business and quarterly results, followed by a question-and-answer session. I would also like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on The RMR Group Inc.’s beliefs and expectations as of today, 05/07/2026, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to forward-looking statements made in today's conference call. Additional information concerning factors that could cause differences is contained in our filings with the SEC, which can be found on our website at rmrgroup.com. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we may discuss non-GAAP numbers during this call including adjusted net income per share, distributable earnings, and adjusted EBITDA. A reconciliation of net income determined in accordance with U.S. Generally Accepted Accounting Principles to these non-GAAP figures can be found in our financial results. I will now turn the call over to Adam. Adam Portnoy: Thanks, Bryan, and thank you all for joining us this afternoon. Yesterday, we reported second quarter results reflecting distributable earnings and adjusted EBITDA at the high end of our expectations, despite operating in what remains an unsettled economic environment. Our second quarter results were highlighted by distributable earnings of $0.44 per share and adjusted EBITDA of $18.5 million. Although we continue to navigate market volatility and geopolitical uncertainty, The RMR Group Inc. has been very active this year executing on our clients’ strategic initiatives. The markets continue to recognize our efforts as both DHC and ILPT remain among the best performing REITs in 2026 from a total shareholder return standpoint, extending the significant outperformance they each achieved in 2025. As a result, The RMR Group Inc. earned incentive fees for 2025 of $23.6 million, and we are on track to earn incentive fees again this year, as both DHC and ILPT accrued incentive fees this quarter. I would now like to go over some recent highlights at our managed REITs. Before turning the call over to Matthew Paul Jordan to provide an update on our private capital initiatives, at DHC, following the successful transition of 116 senior living communities to new operators in 2025, it has continued to focus on improving SHOP operating performance while also strengthening its balance sheet. In the first quarter, DHC generated normalized FFO of $33 million, or $0.14 per share, and adjusted EBITDA of $74 million, both exceeding analyst consensus estimates. SHOP performance showed positive momentum with year-over-year same-property NOI growth of 13.5% and occupancy increasing by 110 basis points. In March, DHC completed the sale of 13 unencumbered non-core communities for gross proceeds of approximately $23 million. Following an active 2025 in which DHC completed approximately $605 million of asset sales, we expect asset sales to decelerate in 2026 with management focused on improving NOI across the retained portfolio. Lastly, in April, Moody's upgraded DHC's debt ratings and revised its outlook to positive from stable, underscoring the company's improving operating performance and balance sheet. At SVC, we recently made significant progress improving its balance sheet and covenant ratios. The RMR Group Inc. was instrumental in helping SVC complete a $575 million equity offering, which accelerated its deleveraging strategy, eliminated near-term refinancing risk, and provided SVC additional flexibility to optimize its hotel performance and execute further asset sales. With the net proceeds, SVC eliminated all of its unsecured debt maturities until 2028. As it relates to SVC's equity offering, I would highlight that The RMR Group Inc. participated with a $50 million anchor investment, further aligning our interests with shareholders and demonstrating our confidence in SVC's business plan. Following several years of strategic capital investments to reposition the retained hotel portfolio, SVC is now transitioning toward an earnings recovery phase supported by new hotel leadership at Sonesta that is focused on improving operating performance. ILPT continues to deliver strong results with first quarter normalized FFO of $0.33 per share and adjusted EBITDA of $87 million, both exceeding the high end of management's guidance. ILPT also executed approximately 862 thousand square feet of leasing during the quarter at rental rates 26% higher than prior rents. Additionally, The RMR Group Inc. recently assisted ILPT with the refinancing of $1.6 billion of new debt for its consolidated Mountain joint venture, which replaces floating-rate and amortizing debt with interest-only fixed-rate debt at an attractive 5.7% interest rate while also extending ILPT's debt maturity profile. Seven Hills, our mortgage REIT, has been actively deploying capital from its December rights offering. During the quarter, Seven Hills originated three loans totaling $67.5 million and generated distributable earnings of $0.24 per share. Total loan commitments increased to approximately $776 million in the first quarter, achieving a record high for the portfolio. Originations thus far in 2026 are at the highest net interest margins achieved over the past four years, which reflects the benefits of our focus on middle market lending where there tends to be less competition for high-quality loans. Lastly, OPI recently received court approval for its plan of reorganization, and we expect it to emerge from bankruptcy by the end of the second quarter and for its shares to be publicly traded. We also expect The RMR Group Inc.’s contract with OPI to be consistent with our previously disclosed terms. More specifically, The RMR Group Inc. will continue managing OPI for a five-year term, with The RMR Group Inc. receiving a flat business management fee during the first two years of $14 million per year, and our property management agreement economics will remain unchanged. To conclude, we are pleased with the progress The RMR Group Inc. has made assisting our clients with their financial and strategic objectives. While there remains more work to do, we are encouraged that the markets recognize the significant improvements at both DHC and ILPT. It is important to remember that our publicly traded perpetual capital clients provide The RMR Group Inc. with stable cash flows, which we are using to pursue new growth initiatives in the private capital space. The private capital segment of our business has grown from essentially zero AUM in 2020 to nearly $12 billion today, and we anticipate this segment will be a key driver of our future revenue and earnings growth. With that, I will now turn the call over to Matthew Paul Jordan to provide added insights on our platform and private capital growth initiatives. Matthew Paul Jordan: Thanks, Adam. As it relates to our private capital initiatives, with a global in-house sales team firmly in place, we are spending the necessary time building The RMR Group Inc. brand awareness. As an example, I recently had the privilege of joining Peter Welch, who leads our international fundraising efforts in Southeast Asia, meeting with potential partners and participating in events where The RMR Group Inc. stood side by side with larger, more well-established international brands. In aggregate, our international outreach has resulted in our leaders meeting with almost 100 global investors representing almost $7 trillion in AUM. With that said, the ongoing conflict in the Middle East has disrupted fundraising. This disruption has played out in the global fundraising data, as fundraising in 2026 dropped 50% from the same time last year. The positive news for The RMR Group Inc. is that North American real estate still garnered 65% of all dollars raised and value-add strategies represented 56% of all fundraising. Within our residential business, which today represents over $4.7 billion in value-add residential real estate across 18.5 thousand owned and managed units, in April we closed on the acquisition of a multifamily portfolio in Greenwich, Connecticut for almost $350 million. The transaction was sourced off market and marks our entry into one of the most supply constrained and affluent housing markets in the country. The RMR Group Inc. Residential will assume property management and will execute a multiyear strategy focused on modernizing the communities, enhancing the resident experience, and unlocking embedded efficiencies. The acquisition is part of a joint venture where The RMR Group Inc. is a co-general partner and, in that capacity, made a $6 million investment for a 5% ownership interest. The remaining equity of approximately $120 million was raised from two institutional partners. The RMR Group Inc. will recognize revenues from this transaction of $600 thousand in our third fiscal quarter and, as general partner, we will earn ongoing operating fees of approximately $750 thousand annually. Longer term, the venture is expected to generate annual cash-on-cash returns of approximately 7.5%, and we expect to receive carried interest from the venture as certain investment hurdles are met. Finally, the venture will not be consolidated given our ownership is limited to 5%, and a portion of our GP interest may become part of The RMR Group Inc. Enhanced Growth Venture. As it relates to the Enhanced Growth Venture, which was launched last fall with the goal of raising approximately $250 million of third-party equity, there remains significant interest in both U.S. value-add multifamily real estate and our seeded portfolio of assets. This interest has resulted in ongoing diligence with a number of potential investors, with the hope that we can provide a more meaningful update on our next earnings call. As it relates to the operating performance within our residential business, we, along with our joint venture partners, remain pleased as occupancy approaches 94%, with resident retention currently over 70% and retained residents absorbing rental rate increases of over 3%. Operating performance at these levels will continue to help with the fundraising in the highly competitive residential space. I would like to also highlight a new disclosure we have made in our investor presentation that emphasizes the discount our shares trade at when looking at our business from a sum-of-the-parts perspective. As we illustrate, if one were to back out the cash and investments held by The RMR Group Inc., our shares are currently trading at only five times the EBITDA generated from the durable cash flows associated with our 20-year evergreen management contracts from our perpetual capital vehicles. This is materially below EBITDA multiples at which our peers trade. We are hopeful this new slide illustrates the significant upside embedded in our shares. In closing, it remains an active time for our organization as we continue to invest in our people, technology, and brand awareness. We are leveraging these investments to reinvent our operating structure, materially increase productivity, and ultimately drive down operating costs to deliver meaningful EBITDA growth. With that, I will now turn the call over to Matthew Brown. Matthew Brown: Thanks, Matt, and good afternoon, everyone. For our fiscal second quarter, we reported adjusted EBITDA of $18.5 million and distributable earnings of $0.44 per share, which exceeded or were at the high end of our guidance. I would also like to note that we reported adjusted net income of $0.11 per share, which fell $0.01 short of our guidance. Going forward, we will no longer provide guidance on adjusted net income, as our investments in leveraged real estate have significantly reduced the usefulness of this metric as we incur depreciation and interest expense on these investments. Recurring service revenues were $42 million, a sequential quarter decrease of approximately $1 million driven primarily by hotel sales, a decrease in the enterprise value of SVC and DHC as they strategically paid off debt, and the wind-down of Alaris Life's business. Next quarter, we expect recurring service revenues to increase to approximately $44 million, driven by approximately $100 thousand of revenue from the multifamily portfolio acquisition in Greenwich, Connecticut that Matt discussed, increased construction management fees, and enterprise value improvements at certain of our managed REITs. Turning to expenses, recurring cash compensation was $37.7 million, a modest sequential quarter increase driven by calendar 2026 payroll tax and benefit resets. Looking ahead to next quarter, we expect recurring cash compensation to remain consistent with the second quarter. Recurring G&A this quarter was $10.1 million after excluding $600 thousand in annual director share grants, which is a slight sequential quarter decrease driven by a reduction in normal course legal and professional fees. We expect recurring G&A to remain at these levels for the remainder of the fiscal year. It is also worth noting that this quarter's income tax rate was elevated at 22% driven by the impact of certain fair value adjustments that we recognized during the quarter, mainly our investment in Seven Hills, that are subject to different statutory rates than our income. For modeling purposes, we may continue to see fluctuations in our income tax rate each quarter as these adjustments impact the timing of tax expense recognition. However, these fluctuations are not expected to materially impact our full-year estimated tax rate of 17% to 18%. Aggregating the collective assumptions I have outlined, next quarter we expect adjusted EBITDA to be approximately $19 million to $21 million and distributable earnings to be between $0.48 and $0.50 per share. As Adam and Matt highlighted earlier, subsequent to quarter end we participated in SVC's equity offering by acquiring nearly 42 million shares for $50 million and acquired a $6 million co-GP equity interest in the Greenwich, Connecticut multifamily joint venture. Our investment in SVC will result in approximately $420 thousand incremental quarterly dividends. Accounting for these transactions, our current liquidity is approximately $133 million, including $75 million of capacity on our revolving credit facility. We continue to be well capitalized with a strong dividend and look forward to executing on our strategic objectives and taking advantage of opportunistic investments as they arise. That concludes our prepared remarks. Operator, please open the line for questions. Operator: Thank you. We will now open the call for questions. We will begin the question-and-answer session. Today's first question comes from Mitchell Bradley Germain at Citizens Bank. Please go ahead. Mitchell Bradley Germain: Thank you for taking my question. Adam, there is a whole bunch of multifamily assets that are owned in different syndications. I am curious, is the expectation of one transaction if you can lock in a larger fund? Is the expectation that this all kind of cleans up with that, or is there the potential for some of these to just continue to remain as one-off investments? Adam Portnoy: Hi, Mitch. Thank you for that question. It is a good question. I think you have to keep in mind part of the way you answer that question is how we put together the portfolio that is our multifamily portfolio. It is the only asset class that we manage that is 100% private. We do not have a public vehicle around multifamily. That portfolio was originally, well, mostly constructed as part of the acquisition of our residential platform about a little over two years ago. Most of those investments are in joint ventures, one-off joint ventures per investment. A few of them are small portfolios. That is how that whole business has been structured, similar to the way we bought it. I expect that we will continue to have many of those joint ventures be the form of the investments we make, especially over the short term. But I think what you are seeing in terms of the Enhanced Growth fund that Matthew Paul Jordan talked about and we have talked about on many calls is we are starting to try to put together a portfolio among the approximately $4.7 billion, which is mostly joint ventures, into, let us say, a fund that we can raise money around. So we are trying to do both. I do not think you will see a transaction that will suddenly, let us say, roll up all $4.7 billion into a new public vehicle— I am not sure if that was your question, but that is not where we are going with that. It is likely to all stay private, likely to continue to be joint ventures, one-offs, small portfolio joint ventures, and our hope is that we can start to build a more dedicated fund around that strategy as well. Mitchell Bradley Germain: Taking that a little bit further, I think the last couple of quarters you seemed a little bit more positive on a potential venture in, I guess we will call it commercial mortgage, as well as, I think, you have mentioned development. Are those two products just a little bit behind multifamily right now with regards to your priorities? Adam Portnoy: They are all top priorities. I will tell you, we are continuing to talk to investors and partners about development projects. I think in the current market environment, the returns required for development projects are pretty high. Development is always difficult when you have a lot of uncertainty, and it is hard to predict the next quarter, let alone 18 months from now, which is typically what you have to sign off on for development projects. So we are continuing to work on those. I expect we will, in the course of the year or so, have some joint venture development projects underway. It is just that today, in the multifamily space, with the portfolio that we have assembled, we are generating the highest amount of interest around that. One comment on the credit that you mentioned, Mitch. We are also very active in talking to investors around credit as well. I would not say it is less of a priority, but we have a lot of money to put out in our Seven Hills mortgage REIT right now, and I think the number is close to $500 million of capacity over the next year of new investments that we are going to be able to make between new money coming into that vehicle and expected loan payoffs. So we have a pretty good pipeline and capacity with our existing vehicles there. We are still talking to investors around credit. There has been a general pullback around credit, given what is going on in the marketplace around some other funds that are in the credit space, especially retail-oriented funds, and so there has been some hesitancy among investors to take those conversations further at the moment. But that is okay from our perspective because we can do a lot of work there anyway. We can put a lot of AUM to work otherwise. Mitchell Bradley Germain: Gotcha. Last one for me. I think at one point you might have had close to $300 million of cash on hand. I think that, obviously, that balance has come down a bit as you are buying some of these assets and warehousing them on balance sheet in anticipation of some of your fundraising. Where are you with regards to how much cash you want to keep on hand for some sort of rainy day? Are we getting close to an amount where you are starting to become a little bit more conservative with allocating capital, or are you still all systems go if the right opportunities are presented? Adam Portnoy: More the “all systems go” if the right opportunities present themselves. We have over $100 million of liquidity between cash on hand and undrawn capacity on our revolver. We are also fairly optimistic that we will be getting some cash back, especially as we are hopefully successful in syndicating the Enhanced Growth value-add fund that we have built up around the multifamily strategy. We have just under $100 million of capital committed to that venture, and if we are successful in syndicating that and getting that fund launched— and we are optimistic that we will get it done— a lot of cash will also be coming back to us, we think. Thank you. Operator: Thank you. Our next question today comes from Christopher Nolan at Ladenburg Thalmann. Please go ahead. Christopher Nolan: Hi, guys. Adam, is Seven Hills participating in the Greenwich project, providing debt financing? Adam Portnoy: Hi, Chris. No. Seven Hills is not providing any sort of financing with the multifamily acquisition in Greenwich. No. Christopher Nolan: And then, I guess, Matthew Brown, did you say adjusted EBITDA in the next quarter will be $19 million to $21 million, or did I mishear you? Matthew Brown: Adjusted EBITDA in the fiscal third quarter is expected to be $19 million to $21 million. Christopher Nolan: Great. I guess as a follow-up in general, Adam, how would you characterize the market for raising equity for commercial real estate as opposed to raising debt for commercial real estate? Adam Portnoy: It is a great question. First, I am going to let Matthew Paul Jordan answer that question. Go ahead, Matt. Matthew Paul Jordan: Well, in terms of the debt, there is a lot of debt available to lend against real estate. We have no lack of interest— just having done this on the Greenwich asset. Adam touched on fundraising around credit, which is very challenging right now for a number of reasons, including a lot of supply in the market in terms of organizations like ours going out with credit vehicles. Fundraising for equity is a very challenging effort right now. The volatility in the Middle East has taken a large number of folks that were putting a lot of money out and put them on the sidelines. Volatility is not a good thing for those that are fiduciaries of deploying capital. The money and the allocations to real estate will be there in the long term, but right now a lot of the conversations we have had are continuing but have slowed significantly. And to Adam's point on the Enhanced Growth venture, I just think it is elongating the fundraising cycle for what we are doing. But there continue to be significant allocations— as we highlighted, we have met with a significant number of global LPs. The RMR Group Inc. itself is still a new brand, so we are spending a lot of time getting our name out there. People are amazed at the capabilities we bring and the breadth of our organization. But things are just going to take longer until the Middle East settles down. Christopher Nolan: Okay. And then I guess as a final question, you are seeing with some private equity shops that they are setting up distressed commercial real estate funds. Is that a potential strategy that you would consider? In my view, that tends to be preparing for some sort of, you know, down cycle. Adam Portnoy: Chris, it is not something we are actively pursuing at the moment in terms of setting up a distressed real estate fund. We have limited pockets within The RMR Group Inc., in the different funds that we manage and groups, that if a really attractive distressed opportunity presented itself to us, we could seriously consider executing on it. But we are not building out a strategy around that today. Christopher Nolan: Okay. Thank you. Operator: Thank you. And our next question today comes from John James Massocca at B. Riley. Please go ahead. John James Massocca: Maybe sticking with the big-picture fundraising theme, you have seen some pullback in some other types of credit funds, private lending being the most notable. Are you seeing any indications of that capital potentially being reallocated to things that are a little more tangible like real estate, or is that just an unrelated phenomenon in your mind? Matthew Paul Jordan: Yeah. I do not think they are related. It is interesting— when you meet with LPs, lending may not even sit in the real estate bucket. It may be in fixed income and other pockets within these large organizations. So we have not yet experienced where credit allocations have been redeployed in a way that has benefited us on the equity side. John James Massocca: Okay. And maybe switching gears a little bit, going back to a little bit of Mitch's last question, what is the appetite today for more wholly owned assets, or at least consolidated assets on balance sheet, to help create the base for funding either the multifamily-focused fund or even maybe a retail fund going forward? Just kind of curious if you think you are at a good point in terms of the wholly owned assets you have today, or if there is more capacity to continue to add to that? Adam Portnoy: Yeah. I think there is a little more capacity to add to it. I do not think we will be adding— until we are successful syndicating the Enhanced Growth venture— wholly owned multifamily assets on the balance sheet. But you mentioned retail. Retail is an area that we could maybe add a couple more assets to the balance sheet if it was the right type of asset. So that is an area that you could see us do some more asset-level acquisitions on The RMR Group Inc. balance sheet to help get that retail strategy further along. John James Massocca: Okay. And then thinking about the quarterly financials, you predicted a little bit— construction supervision revenues were down pretty big, certainly quarter over quarter, but even year over year. How much of that is just the new normal, how much is maybe one-off, and how much is seasonality? Any color on how you would expect that to trend over the remainder of the year? Matthew Brown: Yes. When you look at our construction management fee revenue sequentially, it is really just driven by the start of the year generally being a little bit slower for us as budgets are reset. As we look year over year, at some of our managed public vehicles we had some pretty extensive capital improvement projects going on— mainly within DHC and SVC— that have largely wound down. Those REITs are now forecasting less capital spend in 2026 than they were. We do expect a little bit of a ramp next quarter as we progress throughout the year. John James Massocca: But maybe the year-over-year decline as you think about comparing it to the comparable quarter in 2025 is kind of a good way to think about it going forward? Matthew Brown: Yeah, I think that is a good run rate. Operator: Thank you. And that does conclude our question-and-answer session. I would like to turn the conference back over to President and CEO, Adam Portnoy, for any closing remarks. Adam Portnoy: Thank you all for joining our call today. We look forward to seeing many of you at our upcoming industry conferences, including NAREIT in June, and we encourage institutional investors to contact The RMR Group Inc. Investor Relations if you would like to schedule a meeting with management. Operator, that concludes our call. Operator: Yes, sir. Thank you very much, and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Operator: Hello, everyone, and thank you for standing by, and welcome to Great-West's First Quarter 2026 Results Conference Call. [Operator Instructions] It is now my pleasure to turn the conference call over to Mr. Shubha Khan, Senior Vice President and Head of Investor Relations at Great-West. Welcome, sir. Shubha Khan: Thank you, Jim. Hello, everyone, and thank you for joining the call to discuss our first quarter financial results. Before we start, please note that a link to our live webcast and materials for this call have been posted on our website at greatwestlifeco.com under the Investor Relations tab. Turning to Slide 2. I'd like to draw your attention to the cautionary language regarding the use of forward-looking statements, which form part of today's remarks. And please refer to the appendix for a note on the use of non-IFRS financial measures and important notes on adjustments, terms and definitions used in this presentation. And turning to Slide 3. I'd like to introduce today's call participants. Joining us today are David Harney, our President and CEO; Jon Nielsen, our Group CFO; Ed Murphy, President and CEO, Empower; Fabrice Morin, President and CEO, Canada; Lindsey Rix-Broom, CEO, Europe; Jeff Poulin, CEO, Capital and Risk Solutions; Linda Kerrigan, our Appointed Actuary; and John Melvin, our Chief Investment Officer. We will begin with prepared remarks, followed by Q&A. With that, I'll turn the call over to David. David Harney: Thanks, Shubha, and good morning, everyone. Please turn to Slide 5. We delivered a strong start to 2026 with double-digit earnings growth for Great-West in each of our operating segments. These results reflect the structural progress we've made over the past several years, including our shift to a more capital-light business mix, the operating leverage across our platforms and disciplined capital deployment. This quarter, we delivered 20% year-over-year growth in base earnings and 23% growth in base EPS, driven by strong underlying business performance and the continued execution of our capital return strategy. Q1 marks another important milestone for Great-West as it is the first time we have achieved all our potential objectives we set out at our Investor Day last year. This is the direct result of our focused strategies and disciplined execution, and we are confident in the medium-term outlook for our business. Our strong cash generation and balance sheet continue to provide significant financial flexibility with over $2 billion in Holdco cash at quarter end, even after nearly $600 million of share buybacks during the period. Please turn to Slide 6. As I mentioned, we delivered base earnings per share growth of 23% year-on-year primarily owing to strong growth in our capital-efficient businesses. Notably, Empower base earnings grew 23% year-over-year in U.S. dollars, driven by strong retirement and wealth growth and operating leverage. While Capital and Risk Solutions saw 41% growth with continued momentum in its capital solutions business, highlighting our position as a leader in retirement services and wealth management. Great-West saw a 10% year-over-year growth in total client assets to $3.3 trillion, of which more than $1.1 trillion represents higher-margin assets under management or advisement. Robust capital generation continued to reinforce our strong financial position this quarter. Despite continued share buybacks, we ended with a solid capital base including a LICAT ratio of 129%, Holdco cash of over $2 billion and a stable leverage ratio. Please turn to Slide 7. At our Investor Day last year, we reiterated our objectives for base EPS growth and dividend payout, introduced a new objective for base capital generation and raised our base ROE ambition. Our first quarter results were in line with all our medium-term objectives with base ROE exceeding 19% for the first time this quarter. Our success can be attributed to the market-leading strength of our businesses, the continued shift towards capital-light growth and disciplined capital management. I am very pleased with the progress we have made as an organization over the past several years to drive stronger returns. While market conditions have been supportive in recent quarters, the structural progress we've made puts us on course to deliver 19% plus base ROE on a sustainable basis. Please turn to Slide 8. Each of our segments delivered against their growth ambitions in the first quarter. As I mentioned, Empower grew base earnings at a double-digit pace year-over-year with strong operating margins and net flows in Retirement as well as impressive growth of 65% in the Wealth business. Canada saw growth across all lines of business with double-digit growth in both retirement and wealth assets. In Europe, Retirement and Wealth and insurance earnings growth were propelled by strong client asset flows as well as strong retail annuity sales. In Capital and Risk Solutions, there continues to be solid demand across geographies and product lines for capital solutions, which coupled with strong insurance experience, drove 41% year-over-year base earnings growth. Overall, I am very pleased with the strong start to 2026. Double-digit growth across all four. business segments drives continued confidence for the remainder of 2026. Before Jon covers our first performance in more detail, I will pass it over to Ed to talk more about Empower's results and the work done by his teams this quarter to meaningfully strengthen the long-term growth profile of the Empower business. Edmund Murphy: Great. Thank you, David, and good morning, everyone. Please turn to Slide 10. Empower delivered another strong quarter with double-digit base earnings growth reflecting continued momentum across our Retirement and Wealth lines of business. This drove Empower's base ROE to 20.8%, a key contributor in achieving Great-West 19% ROE objective. In our workplace business, strong equity markets drove double-digit year-over-year growth in client assets. Net plan flows exceeded net participant outflows in the quarter and we continue to expect positive net plan flows for the full year 2026. Operating margins also improved by over 300 basis points from a year ago, helped by improved credit experience and underscoring the strong operating leverage in the business. Empower Wealth continues to see outstanding growth with base earnings up 65% year-over-year. Operating margins held steady at 39% despite increased brand investment in Q1, further demonstrating the scalability of our wealth platform. With significant momentum in our underlying businesses, we are increasingly confident that Empower can capitalize on the growing demand for Retirement and Wealth solutions in the United States. We were encouraged by recent policy developments to expand access to retirement savings and support long-term financial security, including new Department of Labor safe harbor guidance, the administration's April 30 executive order and growing momentum around solutions such as Trump accounts. Together, these efforts highlight the importance of public-private collaboration and helping more individuals build confidence in their financial futures. Turning to Slide 11. Empower has built a very strong foundation as the second largest retirement plan provider with $2 trillion in client assets and as a leading wealth manager. We are still in the early stages of deepening the relationship with our 20 million customers. A key theme at Empower is building customers for life. That means being there for our customers throughout their financial journey. We have previously highlighted the value we provide during client rollovers, and it continues to be an important lever of growth for the business. We expect nearly $1 trillion to roll off the platform over the next 5 years. A significant portion of that money in motion will be eligible for rollover, and we are the #1 destination for those assets. As we look ahead, the opportunity to create value for our customers is much broader. Customers hold roughly 3x more assets off platform than on-platform. We are increasingly focused on building trust with our customers to earn the management of those assets as well. Workplace, rollover and crossover represent highly complementary mutually reinforcing channels. For example, by strengthening engagement, while customers are still in plan and before life events occur, we can increase the likelihood that they stay with Empower when they roll their assets into an IRA or seek out additional financial solutions. Meanwhile, customers that are more actively engaged with our workplace platform are more likely to aggregate their other assets with us. Please turn to Slide 12. Our strategy is simple, engage customers earlier and more proactively, make it easier to do business with us and then earn their trust and the right to serve them across their entire financial journey. To advance our strategy, we have embarked on our journey to realign the organization to strengthening our offering for customers while ensuring the durability of Empower's growth profile. In the last few months, we established greater organizational alignment between our Retirement and Wealth businesses and started realigning teams to encourage earlier conversations with customers, drive deeper relationships that support better outcomes. These efforts position us to better serve our customers long term. Looking ahead, we're focused on executing across several levers to drive continued growth. First, we have built out our product offerings into new areas such as stock plan services and consumer directed health savings, making Empower even more relevant across a broader set of customers and needs. Secondly, we are expanding access to financial solutions through continued investment in digital and AI tools to support greater personalization and a seamless end-to-end customer experience. We are also building deeper partnerships with plan sponsors and their advisers to drive advocacy, increase engagement and do more for participants to build greater trust. We are highly confident in the outlook for the business and our ability to continue delivering on our growth agenda in the years ahead. I'll now pass it over to Jon to talk through the broader financial results for the quarter. Jon Nielsen: Thank you, Ed, and good morning. Please turn to Slide 14. Great-West delivered double-digit base earnings growth across all segments in the first quarter, demonstrating continued execution against our strategic priorities. The first quarter results were driven by strong performance across our Retirement and Wealth businesses, continued momentum in new business volume and favorable insurance experience at CRS as well as improved credit experience across our investment portfolio. These results were achieved despite heightened market volatility, underscoring the strength of our diversified, increasingly capital-light business mix as well as the benefits of disciplined capital deployment. Our capital position remains strong with stable leverage and ample liquidity to support both organic growth and capital deployment. During the quarter, we repurchased approximately $567 million of common shares contributing to the 23% growth in base earnings per share year-over-year. Great-West also delivered base ROE of 19.1%, an increase of 190 points from the prior year. As David highlighted, we achieved our medium-term objective of 19% plus for the first time. The results this quarter reflect high-quality earnings with close alignment between net and base earnings. Turning to Slide 15. We are pleased that total credit losses for the first quarter were down year-over-year and lower than our expected range of 4 to 6 basis points on an annualized basis. As a reminder, total credit experience is the aggregate of credit experience shown in our drivers of earnings disclosure as well as in our Retirement and Wealth P&L statements, all of which are included in the supplemental information package. We continue to expect under normal conditions, credit experience would be at the lower end of the range. Turning now to our results by segment, starting with Slide 16. Base earnings in our Canadian operations increased 11% year-over-year, with robust growth across all lines of business. Retirement and Wealth results were driven by higher fee income as well as improving retirement flows. Group Benefits earnings were driven by strong operating leverage and were impacted by modest insurance experience gains. Finally, insurance and annuity results were supported by higher sales than a year ago, favorable mortality experience and higher net investment results. Turning to Slide 17. In Europe, base earnings increased 10% year-over-year in constant currency, primarily driven by higher global equity markets, trading gains and strong growth of the Group Benefits in force book. Bulk annuity sales, which tend to be lumpy, did not contribute significantly to the base earnings growth this quarter. However, the second quarter pipeline is very strong, and we expect this to translate to higher insurance earnings in the coming quarters, augmenting solid underlying momentum across all the other lines of business. Turning now to Slide 18. Capital and Risk Solutions delivered another strong quarter, with base earnings up 43% on a constant currency basis. We continue to see strength in demand for our capital solutions business globally. The pipeline for these solutions remains robust, and we expect new business volume to remain strong through the remainder of 2026. The strong CRS results this quarter were also driven by favorable U.S. mortality experience. Overall, this business will likely exceed our medium-term base earnings objective in 2026. Turning now to Slide 19. As we've highlighted previously, organic capital generation remains a key strength of our businesses. In the first quarter base capital generation exceeded 80% of base earnings, while free cash flow was 85% of base earnings. We expect both these measures to continue to be strong over time, as the relative earnings contributions from our capital-light businesses grows, while attractive organic growth opportunities in our more capital supported businesses may impact capital generation in any given quarter, we expect Great-West to remain highly cash generative. Turning to Slide 20. Great-West's strong free cash flow generation continues to support ongoing share repurchases and provides capacity for further capital deployment through the year. During the first quarter, we repurchased $567 million of common shares. We expect the return of capital to shareholders to be at least in line with 2025, especially if compelling strategic M&A opportunities do not materialize in the near term. Turning to Slide 21. Our LICAT ratio stood at 129%, up from 128% at the end of the fourth quarter, driven by strong capital generation and favorable seasonality in our Reinsurance business. Looking ahead, we expect to maintain the LICAT ratio above 125% and under normal operating conditions, even with elevated Reinsurance new business volume. The robust capital position, combined with the leverage ratio that remained steady at 28% and a Holdco cash balance of $2.1 billion provides a foundation for continued growth and capital deployment. Overall, we're off to a great start to 2026 and are very excited about the continued strong performance across all of our financial metrics. With that, I will turn it back over to David for his concluding remarks. David Harney: Thank you, Jon. Please turn to Slide 23. The momentum we built in 2025 has continued into 2026, and our first quarter performance reflects the strength and durability of the portfolio we've built. We've achieved our 19% base ROE objective for the first time this quarter. And based on the structural progress we've made across the business, I'm confident in our ability to sustain strong returns in normal market conditions. Looking ahead, we remain well positioned to deliver against all our medium-term objectives. Empower is on track to again deliver double-digit base earnings growth this year as it continues to expand its leadership position in U.S. Retirement and Wealth. CRS continues to outperform its growth ambitions with strong demand for its capital solutions expected to persist through 2026. At the portfolio level, our continued shift towards capital-light businesses supports our expectation to generate 70% or more of base earnings from these businesses over the medium term. This, combined with strong organic capital generation provides us with significant flexibility to invest in the business, pursue strategic opportunities and to continue returning capital to shareholders. We've built a well-diversified, capital-efficient organization with strong growth platforms, disciplined capital management and experienced teams across all our businesses. I'm confident in our ability to continue executing on our strategy and creating long-term value as we move through 2026 and beyond. Thank you. And with that, I'll turn it over to Shubha to start the Q&A portion of the call. Shubha Khan: Thank you, David. [Operator Instructions] Jim, we are ready to take questions now. Operator: [Operator Instructions] We'll hear first from Doug Young at Desjardins. Doug Young: Question on CRS, I guess for Jeff, can you remind us what's driving the improved outlook for Capital Solutions business? And in the same vein, can you remind what percent of CRS' earnings are from Capital Solutions? I think it was 50% not long ago. I would assume it's kind of tilted more towards that. So -- and I've got a follow-up. Jeff Poulin: Thanks, Doug. To answer your last question first, the percentage has gone closer to 60% Capital Solution, 40% Risk Solution. And it's the nature of the Reinsurance business, sometimes some products are more in demand than others. And we have seen a lot of demands for products on the capital solutions side. And it's coming from different products in different jurisdictions. So we're seeing a strong demand in Asia right now because they've got new regulations that are putting more capital demand on the companies. We're seeing it in Europe, where I think the companies are a little strained and then we're seeing it in some segments of the U.S. market. So it's demand across the board, which is a good, a perfect storm from our perspective, that everybody is looking for the types of products we're offering. And it's -- 2025 was an absolute great year from a new business perspective for us and '26 is starting the same way. So the outlook is really good from a new business perspective. Doug Young: Yes. And we talked on this before. Maybe just -- when I see something growing in the insurance world really, really fast and I somewhat get a little nervous. And we've talked about the risk controls that you have internally. But what's the like simple answer that you would get for someone that would look at this and say, man this is growing really, really fast. And this is a fairly complex business. Like how are you managing this risk so that there isn't any surprises? Jeff Poulin: Yes. We've got pretty strong controls. There's lots of levels of risk management within our operation. And I think that's what made us very successful over the years. We've got at every level of a transaction, we have a review and we decide to proceed or not proceed not more than 10% of the transactions we look at get closed. So we have a very, very stringent process to look at that. We try to be flexible with the clients, but at the same time, we're very disciplined at the risk reward needs to make sense, hence the great returns we're seeing. So I think it comes in lumps, this business is like that. We've seen that before. We've wrote a large book of longevity business in the past relatively quickly, and we're still benefiting from it now. I think that it's the nature of the Reinsurance business. Sometimes the demand on a given product is really, really strong. And other times, it's not. So you need to be patient and disciplined. Doug Young: Okay. And then, Jon, can you define -- I think you did this last quarter, but can you define what you believe Great-West Life's or what you calculate Great-West Life's excess capital to be? And how much is at the Holdco because I know you've got an amount there, but I think you want to hold some liquidity. How much is that the Opco and how much is the U.S. sub? And specifically in the Canadian Opco, when you think about binding constraints, what is that binding constraint there? Jon Nielsen: Yes. Thanks, Doug. Let me walk you through the different components. First, as you rightly call out, we have about $2 billion -- $2.1 billion of cash at the holding company. We typically like to have a few hundred million of liquidity there through the cycle, but most of that cash would be readily deployable. We didn't have the regulatory excess capital across the regulated entities. I call that about $2 billion. So you're at $4 billion. In terms of the minimum, I would say you'd kind of look at it as 120%, but we typically like to operate north of there in most transactions, but we could go down to 120% for the right opportunity. So then the other thing I think that we should point out is right now, we're running below kind of a normalized 30% leverage level. So that's another, call it, $1.5 billion, so around $5 billion of capacity there. And then as you're aware, Doug, and special situations for M&A, we have in the past managed to take our leverage ratio up given the exceptional cash flow and capital generation that we have, and we've used that cash flow generation not just from the acquired business, but from our ongoing operations to quickly pay down the leverage, we could see that as another lever to pull and that would be around, call it, $3.5 billion of capacity. So we have got a lot of capacity. But I wouldn't just look at the balance sheet. Look, I would also look at the point out how strong our capital generation is. It continues to be above 80%. All of our segments are throwing off free cash flow. Our free cash flow was over 85% this year. We're exceeding kind of continue to meet and exceed that medium-term objective. It's fungible cash. You can see it come into the liquidity of the holding company. So we're in a really strong position. Operator: Our next question will come from Tom MacKinnon at BMO Capital Markets. Tom MacKinnon: Yes. The -- when we look at CRS and you see insurance experience gains aligned or that hasn't -- that's kind of just hovered around 0 and then we see $47 million in the quarter. Have you done anything different with respect to your terms and conditions with respect to what you're reinsuring here to, I guess, increase the volatility or what you might get from mortality gains, U.S. mortality gains? In other words, when you see a $47 million U.S. mortality gain, that's kind of outsized, could we get a $47 million U.S. mortality loss? Or have you -- is there anything to read in here that you've changed anything to increase the volatility associated with that line? Jeff Poulin: Thanks, Tom. I don't -- I mean, your question is pertinent, but we we've announced last year that we're not in the mortality business anymore. So we really haven't changed the contracts. It's a runoff block at this point. So I think we feel very confident about our assumptions and they should hover around zero. Having said that, I think we had an exceptional quarter from a mortality perspective. It's been very good. We saw another reinsurer -- strong reinsurer in the U.S. announcing the same sort of results yesterday. So I guess mortality was good in the U.S. overall for the quarter and trying to explain volatility on mortality is a difficult thing to do. It will happen. And -- but you should assume that I think our assumptions are legitimate. I think they -- we feel pretty strongly they are. In the last two years, we're running at about 100% of expected. So we feel pretty strong about that. So it is -- it's big volatility, but it's within the range that we estimate it could be. So no real variance there. And of the $47 million, it's only -- I think it's $35 million that is associated to mortality. There was another $12 million there that is due to our longevity block that we onboarded that have been in the books for a while, but that we have booked to expected. And so we had transacted with the company and they paid us expected cash flows for a while. And then once we trued up to the real cash flows, we got the benefit of that. So it shows that we had strong pricing on that transaction. And it was significant enough that it made a difference for $12 million this quarter. But I mean that's unusual so we don't expect that to happen again. Tom MacKinnon: Okay. And then just with respect to Empower Wealth, Jon, in the -- in your fourth quarter conference call, you had highlighted that the fourth quarter margin for U.S. Wealth at 39.4% was higher than normal on seasonality of marketing expenses. And you said an operating margin of 35% better reflects the near-term margin expectation for U.S. Wealth. So why was it not 35% here that you had sort of guided to in your last conference call? Why was it up at 39%? Was there any more marketing expense timing issue there? Jon Nielsen: I think I'll hand it over to Ed, but I think we were a little bit lighter on first quarter marketing, and we expect a little bit to come through the fourth quarter. It's not that significant terms. But maybe, Ed, do you want to give some details? Edmund Murphy: No, I think that's right. It's more deferred spending. We had -- we're embarking on a new campaign and we pushed that out somewhat. I mean I think in terms of the full year expectation will be closer to where we are today, certainly above last year. But it's more timing, Tom. Operator: [Operator Instructions] We'll go to Gabriel Dechaine at National Bank. Gabriel Dechaine: I have a couple of questions here or lines of questions rather. First, on the bulk annuities business in the Europe segment, it sounds like you're similarly bullish there on the sales outlook for Q2 anyhow. I'm just wondering how do you factor in or what comments do you have about that competitive environment where there's been a lot of write-ups about the private equity players getting into that business, and you would think that would maybe dampen your outlook, but doesn't sound like it? And sticking to that topic, just to get a sense for how important it is in that insurance and annuities piece of the pie, how much of that is comprised of bulk annuities versus payout? Lindsey Rix-Broom: Thanks, Gabriel, for the question. And as you say, there is -- there has been increased competition coming to the market over the last 12 months. However, there are still really only 11 players in the market and there's significant demand for bulk annuities, both now and for the future and for the outlook. So we are kind of pleased with where we are. The pipeline, as you say, for Q2 looks very strong and indeed for the rest of the year. So we're optimistic in the outlook for us. I think we remain disciplined in our pricing, as we've said before, and look to continue to be able to make good returns in this area going forward. In terms of individual annuities and bulk annuities, we've had a continued strong performance in individual annuities, particularly in the U.K. market. That outlook remains strong and positive as well. So looking for a balanced performance across both bulk annuities and individual annuities for the future. Jon Nielsen: I'd just add -- just a comment to add on Page 34 of the SIP, you'll be able to see the split of the two categories, individual and bulk. We've done that to be able to monitor the lumpiness of the folks. Gabriel Dechaine: Okay. Great. I was looking at the slide deck, but -- yes. So moving over to the Empower and, Ed, you were talking about the regulatory changes, the Trump IRA accounts and all that. And I mean, I don't know how -- if you could size that opportunity, if that's possible? But on the flip side to that, I'm just wondering because this is another topic that's come up is the suitability of some investment classes for retail investors, private equity and private credit, whatever. What sort of guardrails do you have in place or responsibility even for what you offer to the customers such that if there ends up being some sort of an issue with the suitability that doesn't affect you? Edmund Murphy: So your first question, we see it as a tremendous opportunity. There's different numbers that get referenced, but somewhere between 40 million, 50 million Americans don't have access to workplace savings. So clearly, under the Trump administration, there's been this bipartisan focus both in Congress, but also from a regulatory standpoint to try to drive access and improve coverage. We're right squarely in the middle of that. So we're very active in advocating for those policies. It's hard to size it because at least initially, those are going to be smaller accounts. But as you think about the matching and the compounding effect, it will grow over time. So I'm pretty sanguine about where we are in terms of coverage and expansion, I think it's very constructive. And as I said, we're very much a part of that. The second question you had, I think, is a very important one. I do want to make it clear that the role that we play is not a fiduciary role as it relates to the relationships that we have with alternative managers that are on our platform. We don't act in a fiduciary capacity, we essentially are giving access to these investments. But ultimately, the decision as whether to include any investment for that matter, whether it's public equity, the 40-Act mutual fund or whether it's an alternative asset class, that decision is ultimately being made by the plan sponsor and their adviser. And the other thing I would just add is we are not advocating for -- at this point, we're not supporting stand-alone alternative investments inside the defined contribution plans at Empower. These are all structured as a multi-asset class vehicle through a collective investment trust, and it's supported within our adviser managed account program where there is an adviser, a financial adviser that's attached to each one of these offerings and the typical cap of what might be allocated to that collective investment trust is somewhere around 15% to 20% of the assets. So there's plenty of liquidity, both inside the product itself and then outside where people would be investing in public equities and public debt. And then I would just add that we have about 1,000 plans right now that are in some form of implementation, either they have implemented a vehicle or in the process of implementing a vehicle. So it's still sort of in a nascent stage. But obviously, the directive that came from the Trump administration, I think gave some sponsors comfort that if they follow ERISA standards that and take a thoughtful and practical approach that they're comfortable in going forward. So that's what we're seeing. Gabriel Dechaine: And what about the Individual Wealth business? Are you not a fiduciary there? Is there a similar discussion to be had or differently? Edmund Murphy: Yes, in the individual wealth business, those investors have to be accredited investors. And yes, so they have to meet the credit investor standards. And in doing so, we do act in advisory capacity. We do offer products through a relationship we have with a third party. That too, I would say, is very much in its nascent stages. And the reason is that the preponderance of our client base tends to fall into that mass affluent category. So many of them don't necessarily meet the credit investor standard. So we haven't seen, at this stage, we haven't seen much in the way of adoption of alternatives inside our wealth business. I think that will change over time for sure, as people look to diversify. But at the moment, that's not the case. Operator: Our next question will come from Darko Mihelic at RBC Capital Markets. Darko Mihelic: I just wanted to revisit Empower's flow situation because it does -- it sort of does change my model when I think of it. I mean you had positive flows, which is great. But the way you had described it earlier was that just the general nature of the business is one that would typically have outflows. Maybe I think the number you used previously was like 2% and then some of your efforts and work would maybe grind away at that, but generally, you end up in a place where maybe 1% kind of outflows is like the long-term expectations. So I realize you're doing a lot of work there. Has anything changed and how I should think about the flows and how I should put that into the model? Edmund Murphy: Yes. I think -- let me start with -- I think what you're referring to is flows in our workplace business, specifically participant flows. Obviously, we saw net plan flows for the quarter, and we expect net plan flows for the full year as we experienced last year. With respect to participant flows, you do have a lot of seasonality in that first quarter because that's when you see very high contributions coming into defined contribution plans. You're seeing profit-sharing contributions and the like. So that's not unusual to see a more favorable result in the first quarter. That being said, I think as you look out to Q2 and beyond, you're going to see more normalized participant outflows consistent with the guidance that we've given you in the past. In fact, if you look at what the equity markets have done, particularly in the last 30 or 40 days, you've got higher balances. And so disbursement dollars will probably be higher, right, due to market appreciation, you'll have higher balances in those accounts. So underlying all of this is the sort of demographic dynamic that's playing out in the U.S., where you are seeing net outflows on the participant side across really every provider in the marketplace. We obviously have built what we think is a pretty compelling hetero-s-mid on the wealth side. So we aim to capture some of that money in motion for sure. But the way you should think about this is that there will be a consistent in roughly 1% or so in participant outflows. And I think that will -- you'll see that play out in Q2 and beyond. And then finally, I would just say we continue to grow the business. So we're adding billions of dollars on to the platform through our institutional sales efforts. Our year in 2026 will look very similar to what we accomplished in 2025 on that institutional side. And then when you layer in the market appreciation, you've seen what's happened to our AUA. In fact, since 2021, our assets under administration in our workplace business has grown at a compounded annual growth rate of 11.5%. I think that may be the highest in the industry. Darko Mihelic: That's a great answer. And it is -- I mean I think it's 13% year-over-year this quarter in terms of AUM growth, but the revenue growth lagged. Maybe can you touch on that? Jon Nielsen: Maybe I'll start and then hand it back to Ed. This is Jon. in the quarter, there was a refinement that we made to some data that impacted the classification of certain of the transactional fees so we implemented that in the third quarter. So what it did is it was basically a reallocation between the asset-based fees and the non-asset-based fees. It didn't impact total fees or our financials. But it did reduce asset-based fees and increase the non-asset-based fees. It was about $14 million during the quarter. This had about a 5% impact on the growth rate because we didn't adjust the prior periods. That, Darko, had we applied it. It was about the same amount in the previous -- most recent quarters. I'll hand it back to Ed to kind of give the business context of the fees as well. Edmund Murphy: Yes. Thanks, Jon. The other dynamic, and we've talked about this in prior calls, is just what I would call the mix dynamic and how the business is playing out. So if we have a disproportionate amount of large mega corporate clients, those tend to be fixed fee. They're not asset-based pricing with those plans. And that's what we've seen more recently, when we're winning these large mandates, the pricing is a fixed fee pricing versus down market, call it, plans under $50 million in assets or $75 million in assets, those tend to be asset-based fees in terms of the -- how we get paid for the services is being paid through asset-based fees. I will say in that $75 million space and below, we're #1 in the market, and we have -- we're growing 20%, 25% a year in that pace -- that space. So we're taking business away from the competition. But it does get overshadowed a bit because of the mix issue, as I say, when you win these large corporate and government mandates, which we're winning. Darko Mihelic: I see. Okay. But your sweet spot is still actually the smaller mandates. So I should be thinking of it as more or less growing in line with AUM with the occasional quarter or two where you get a massive mandate. Is that the way I should think of it? Edmund Murphy: Well, I guess the one caveat I would say is, so we're competing in all markets, the government market, the large corporate market, the mega corporate market, the small market, the Taft-Hartley Union. So you're going to see some balance there because if you win a $15 billion, $16 billion, $17 billion mandate, that's going to skew and that's a fixed fee arrangement. That's going to skew the mix, if you will, right? So it adds to your AUA, but it's not generating asset-based fees. Now there are other ways we generate asset-based fees which we can get into. But with respect to the record-keeping administration piece of it, that would be a fixed fee type arrangement. So disparity, if you will, because of the fact that we're a diversified player and we're competing in all segments of the market. Operator: And next, we'll hear from Mario Mendonca at TD Securities. Mario Mendonca: Ed, maybe I'd just stick with you for a moment. Thoroughly the goal here, which I think you've described is to move that rollover rate up to something more in line with where the leaders are, what is your -- and this may ask you to take a kind of a wild guess here, but can that rollover rate for Empower approach the mid-20s over the next couple of years? Or is this a much longer-term endeavor to get it to that level? Edmund Murphy: I'm not sure over the next couple of years. And I'll tell you why. I mean, I think -- we have 20 million customers. But one of the things that we -- there are several things we need to do. One of the things we need to do is to raise aided awareness and raise consideration to a level of some of the more entrenched players. And that's why we've made a concerted effort to invest in the brand and to invest in advertising, but also to create awareness among those 20 million installed base of clients on the workplace side because there's obviously a meaningful subset of those customers that are not necessarily fully aware of our wealth capability. So it's a work in progress. There's the branding, there's. The awareness element of it. I think in terms of the offering itself, it's very competitive vis-a-vis the competition. So it's just -- it's something that, obviously, we need to continue to work on -- but as we've said at Investor Day and we've said at other times, the opportunity here is immense. If we build the trust with the sponsors, if we serve those individual investors well while they're an active participant in the plan, they will think about us and they will give us consideration to be their adviser hopefully in perpetuity. So I think the high 20s -- in the mid- to high 20s in the near term is probably too aggressive. Mario Mendonca: Okay. And then -- and again, this might -- I'm not sure how much you want to get to this. I clearly don't expect you to name names when we're talking about potential acquisition targets and -- but the question is this, is that file sort of active? Like are there active -- are you actively looking at potential acquisitions in this space? Because there are -- there's just so much speculation around the space right now. Is it -- would you call it actively looking? Or is it dormant right now? David Harney: Yes. Maybe I'll take that question, Mario. Like yes, you're dead right, we don't comment on individual opportunities. Like obviously, we're alert and very keen on any opportunities to come to the market, and we look at all opportunities. And maybe just to take a step back, and this answer won't surprise anybody we've said it many times before. But just to reiterate, again, our sort of growth targets, our medium-term growth targets are not dependent on acquisition activity. And you can see that just in the very strong performance of the business this quarter and the growth in all of the segments, which is achieving those targets. But we have firepower as well. And if opportunities come to the market, we will certainly look at them. We've executed very well just on recent acquisitions, both in workplace retirement and on wealth acquisitions. And we're very confident of our capability to execute there again if the opportunities come along. And again, we've been very clear just on the requirements for our acquisition activity. It has to hit our return targets on where we can execute synergies, I think that makes that very possible. And then it has to sort of -- we have to be very confident on execution capabilities. And then the right targets will add scale and will add capability to our businesses, and we're keen to look for opportunities that come along. Mario Mendonca: Okay. And I'll be really brief on this one. Going back to CRS. There's mortality risk, there's CAT, there's longevity. Those are the three big ones I can think of that you're exposed to in CRS. Am I missing anything? Like is there any concentration that concentrated risk that I'm not picking up on? Jeff Poulin: I think those are the main risks that we have on the risk business. Yes. Operator: And at this time, we have no further signals from our audience. Mr. Khan, I'm happy to turn the floor back to you, sir, for any additional or closing remarks that you have. Shubha Khan: Thanks, everyone, for joining us today. Following the call, a telephone replay will be available for one week, and the webcast will be archived on our website for one year. Our 2026 second quarter results are scheduled to be released after market close on Tuesday, July 28, with the earnings call starting at 9:30 a.m. Eastern Time the following day. Thank you again, and this concludes our call for today. Operator: Ladies and gentlemen, we'd like to thank you all for joining today's Great-West First Quarter 2026 Financial Results Call. You may now disconnect your lines. We hope that you enjoy the rest of your day.
Operator: Hello everyone. Thank you for joining us, and welcome to the SandRidge Energy, Inc. first quarter 2026 conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Scott Prestridge, Senior Vice President of Finance and Strategy. Scott, please go ahead. Scott Prestridge: Thank you, and welcome everyone. With me today are Grayson R. Pranin, our CEO; Jonathan Frates, our CFO; Brandon L. Brown, our CAO; as well as Dean Parrish, our COO. We would like to remind you that today's call contains forward-looking statements and assumptions, which are subject to risk and uncertainty, and actual results may differ materially from those projected in these forward-looking statements. These statements are not guarantees of future performance, and our actual results may differ materially due to known and unknown risks and uncertainties, as discussed in greater detail in our earnings release and our SEC filings. You may also hear references to adjusted EBITDA, adjusted G&A, and other non-GAAP financial measures. Reconciliations of these measures can be found on our website. With that, I will turn the call over to Grayson. Grayson R. Pranin: Thank you, and good afternoon. I am pleased to report on a strong quarter for the company. Production averaged 18.6 MBOE per day during the first quarter, an increase of 4% on a BOE basis versus the same period in 2025. Oil production increased 31%, and total revenues increased 17% during the quarter versus the same period in 2025, driven primarily by new production from our operated development program. Before getting into this and other highlights, I will turn things over to Jonathan for details on financial results. Jonathan Frates: Compared to 2025, the company saw increases in the market price of both oil and natural gas. We grew production by 4% year-over-year and generated revenues of approximately $50 million, which represents an increase of 26% compared to last quarter and 17% compared to the same period last year. Adjusted EBITDA was $33.7 million in the quarter compared to $25.5 million in 2025. We continue to manage the business with a focus on maximizing long-term cash flow while growing production and utilizing our NOLs to shield us from federal income taxes. At the end of the quarter, cash, including restricted cash, was approximately $104 million, which represents over $2.80 per common share outstanding. Cash was down compared to the prior quarter due to an increase in noncash working capital, primarily related to the timing of payables versus receivables from our one-rig drilling program. Working capital, as represented by current assets less current liabilities, was up by $3.7 million compared to the prior quarter. The company paid $4.4 million in dividends during the quarter, which includes $600 thousand of dividends to be paid in shares under our dividend reinvestment plan. On May 5, 2026, the Board of Directors increased the regular-way dividend by 8%, declaring a $0.13 dividend as well as a one-time special dividend of $0.20 per share, both of which are payable on June 1 to shareholders of record on May 20, 2026. Shareholders may elect to receive cash or additional shares of common stock through the company's dividend reinvestment plan. Following these dividends, SandRidge Energy, Inc. will have paid $5.05 per share in regular and special dividends since the beginning of 2023. Commodity price realizations for the quarter before considering the impact of hedges were $71.11 per barrel of oil, $3.13 per Mcf of gas, and $18.64 per barrel of NGLs. This compares to fourth quarter 2025 realizations of $57.56 per barrel of oil, $2.20 per Mcf of gas, and $14.92 per barrel of NGLs. Our commitment to cost discipline continues to yield results, with adjusted G&A for the quarter of approximately $2.4 million or $1.42 per BOE compared to $2.9 million or $1.83 per BOE in 2025. Net income was $18.7 million for the quarter, or $0.50 per diluted share. Adjusted net income was $21.6 million, or $0.58 per diluted share. This compares to $13 million, or $0.35 per diluted share, and $14.5 million, or $0.39 per diluted share, respectively, during the same period last year. The company generated cash flow from operations of $19.8 million during the quarter compared to $20.3 million during the same period last year. Adjusted operating cash flow was $34.4 million during the quarter compared to $26.3 million in the same period of 2025. Lastly, production is hedged with a combination of swaps and collars representing just under 30% of the midpoint of our 2026 guidance. This includes approximately 37% of natural gas production and 43% of oil. These hedges will help secure a portion of our cash flows and support our drilling program through the year. We continue to monitor prices and take advantage of favorable opportunities, but plan to maintain meaningful upside throughout the remainder of the year. Before shifting to our outlook, you should note that our earnings release and 10-Q will provide further details on our financial and operational performance during the quarter. Now I will turn it over to Dean for an update on operations. Dean Parrish: Thank you, Jonathan. Let us start with a review of the first quarter and discuss recent drilling and completion results. Total capital spend for the quarter, excluding A&D, was $19.9 million, which is better than expectations for the quarter, mostly due to drill schedule adjustments. A rigorous bidding process focused on driving drilling and completion costs down in the Cherokee play and longer artificial lift run times from previous years of improvements kept us on budget. Additionally, we have been securing critical well components needed for the remainder of the year to minimize any supply or inflationary pressures that may affect our capital program. Lease operating expenses for the quarter were $10.8 million, or $6.45 per BOE, which falls right in line with expectations. We are also securing the needed equipment and services that will be critical for production operations in 2026, similar to the capital program. We expect to continue to see pressure on diesel fuel through fuel surcharges passed on through service providers that have strict internal protocol to reduce surcharges when diesel prices begin to decrease. During the quarter, the company successfully completed three wells and brought two wells online from our operated one-rig Parakeet drilling program. We recently brought online the ninth well in our program and are drilling the eleventh, while the tenth well awaits final completion. Our operations team continues to execute, with the tenth well that was just drilled being the fastest, lowest cost to date, driven by the team's focus and ingenuity to reduce costs. It is early, but we are seeing some incremental efficiencies on our eleventh well drilling now, and we will have more to share next quarter. Moving to our 2026 capital program, we plan to drill 10 operated Cherokee wells with one rig this year and complete eight wells. The remaining two completions are anticipated to carry over to next year. A majority of the remaining wells in our development program this year directly offset proven or in-progress wells in the area, and we continue to monitor offsetting results. Gross well costs vary by depth but are estimated to be between approximately $9 million and $11 million. We intend to spend between $76 million and $97 million in our 2026 capital program, which is made up of $62 million to $80 million in drilling and completions activity, and between $14 million and $17 million in capital workovers, production optimization, and selective leasing in the Cherokee play. Our high-graded leasing is focused on further bolstering our interest, consolidating our position, and extending development into future years. With that, I will turn things back over to Grayson. Grayson R. Pranin: Thank you, Dean. Let us start with commodity prices. We started the year with strong natural gas prices, which benefited January and February revenues. During this period, our largest natural gas purchaser elected to move to ethane rejection. This means that more ethane is sold as natural gas and less is separated as NGLs. This typically results in fewer barrels of equivalent in volume, which impacted both our NGL and overall BOE volumes for the quarter, but it benefited natural gas volumes and revenue as the gas was sold at relatively higher prices with an increased BTU factor. This had a positive effect on revenue due to the dynamics of high natural gas and lower relative ethane prices during the period. However, natural gas prices have since declined and, with it, the spread between natural gas prices and ethane. Our largest natural gas purchaser returned to ethane recovery in March and plans to maintain recovery until there is further benefit otherwise. Also, while natural gas prices increased during January, we did experience increased production deferment during Winter Storm Fern, which negatively impacted volumes. Despite this challenge, our team did an amazing job operating through the extreme cold weather and minimizing downtime as much as possible—and, most importantly, doing so safely. Now shifting to oil, the year began with oil prices in the mid- to upper-$50 range, which changed dramatically over the quarter. Despite seeing spot rates reach up to triple-digit levels recently, WTI averaged $72.74 per barrel in Q1 because the shift occurred in late February and early March. For the same reason, the increase in WTI prices only partially benefited our revenues during the quarter, as the entire oil price increase occurred in the back half of the quarter. Thus far, oil prices have remained high in the second quarter and could benefit revenues further. Our commodity prices are driven by market dynamics outside of our control. We have used our favorable position and came into the year with minimal hedges to take advantage of the increases year-to-date, the details of which can be found in our earnings release and 10-Q to be filed later today. Combined with our prior hedges, we have hedged a meaningful portion of our PDP volumes for the remainder of the year, which allows us to secure a portion of our cash flows at prices that are materially above where we started the year and where we budget. The remainder of our PDP oil volumes and all of the volumes from our current drilling program will participate at the market with exposure to current high prices. We have endeavored to balance securing cash flows while maintaining an appropriate level of exposure to commodity upside. That said, there has been a lot of volatility in WTI pricing over the last few weeks and much speculation over futures, with the forward curve remaining in steep backwardation. We are content with the current level of hedging this year. We will continue to monitor geopolitical events and future pricing for further adjustment, with specific focus on longer-term periods. Now let us pivot over to our development program. As Dean discussed, we had first production on two wells this past quarter. One well targeted the Cherokee shale in our core area, consistent with wells last year. These wells had an average peak 30-day of approximately 2 thousand BOE per day, made up of 45% oil, including the newest seventh well. The other well turned in line this quarter and tested the Red Fork formation, a sandstone in the Lower Cherokee group. This was an initial well in a new area for us that offset and delineated a very productive well drilled by a reputable operator. This well allows us to better establish performance expectations in a new target in a new area. The leasing costs have been very attractive. Currently, we do not have any Red Fork wells planned for the rest of the year. However, we plan to monitor the performance of this well, industry and offsetting activity—which has increased over the past year—as well as commodity prices and other factors while evaluating the go-forward plan in the new area. Given the tailwind of WTI prices and the enhancement to returns, we plan to continue our Cherokee development with one rig and further grow oily production. While the program is attractive in a range of commodity environments, our team will continue to be diligent by prioritizing full-cycle returns, monitoring reasonable reinvestment rates, and, when needed, exercising drill schedule flexibility to make prudent adjustments to our development plans in different economic environments. Also, we do not have any significant near-term leasehold expirations and have the flexibility to defer these projects if needed for a period of time. I am very pleased with our team for their continued focus on safety, execution, and cost focus in development and production optimization programs. They have truly championed safety, resulting in the continuation of a record of more than four years without a recordable safety incident. In addition, they continue to operate at a high level with a lean, but very engaged and experienced staff with peer-leading operating and administrative cost efficiencies. I would like to pause here to highlight the optionality we have across our asset base. Coupled with the strength of our balance sheet, it sets us up to leverage commodity price cycles. The combination of our oil-weighted Cherokee and gas-weighted legacy assets, as well as a robust net cash position, gives us multifaceted options to maneuver and take advantage of different commodity cycles. Put simply, we have a strong balance sheet and a versatile kit bag, which makes the company more resilient and better poised to maneuver and adjust, no matter the commodity environment. I will now revisit the company's advantages. Our asset base is focused in the Mid-Continent region with a PDP well set that provides meaningful cash flow, which does not require any routine flaring of produced gas. These well-understood assets are almost fully held by production, have a long history, a shallowing and diversified production profile, and double-digit reserve life. Our incumbent assets include more than a thousand miles each of owned and operated SWD and electric infrastructure over our footprint. This substantial owned and integrated infrastructure helps de-risk individual well profitability for the majority of our legacy producing wells under roughly $40 WTI and $2 Henry Hub. Our assets continue to yield free cash flow. This cash generation potential provides several paths to increase shareholder value realization and is benefited by a low G&A burden. SandRidge Energy, Inc.'s value proposition is materially de-risked from a financial perspective by our strengthened balance sheet, including negative net leverage, financial flexibility, and advantaged tax position. Further, the company is not subject to MVCs or other off-balance-sheet financial commitments. We have bolstered our inventory to provide further organic growth opportunities and incremental oil diversification, with low breakevens in high-graded areas. Finally, it is worth highlighting that we take our ESG commitment seriously and have implemented disciplined processes around them. Not only do we continue to operate our existing assets extremely efficiently and execute on our Cherokee development in an effective manner, but we do so safely. Shifting to strategy, we remain committed to growing the value of our business in a safe, responsible, efficient manner while prudently allocating capital to high-return growth projects. We will also evaluate merger and acquisition opportunities while maintaining financial discipline, consideration of our balance sheet, and commitment to our capital return program. This strategy has five points. One, maximize the value of our incumbent Mid-Con PDP assets by extending and flattening our production profile with high rate-of-return production optimization projects, as well as continuously pressing on operating and administrative costs. Two, exercise capital stewardship and invest in projects and opportunities that have high risk-adjusted, fully burdened rates of return while prudently targeting reasonable reinvestment rates that sustain our cash flows and prioritize a regular-way dividend. Three, maintain optionality to execute on value-accretive merger and acquisition opportunities that could bring synergies, leverage the company's core competencies, complement its portfolio of assets, whether it utilizes approximately $1.5 billion of federal net operating losses or otherwise yields attractive returns to its shareholders. Four, as we generate cash, we will continue to work with our board to assess paths to maximize shareholder value to include investment and strategic opportunities, advancement of our return-of-capital program, and other uses. To this end, the board continues to focus on the company's return of capital to stockholders as a priority in capital allocation, and as a result, expanded its ongoing dividend program by 8% and declared a one-time dividend. The final staple is to uphold our ESG responsibility. Now, shifting to administrative expenses, I will turn things over to Brandon. Brandon L. Brown: Thank you, Grayson. As we close out our prepared remarks, I will point out our first quarter adjusted G&A of $2.4 million, or $1.42 per BOE, continues to lead among our peers. The consistent efficiency of our organization reflects our core values to remain cost disciplined and to be fit for purpose. We will maintain our efficient and low-cost operation mindset and continue to balance the weighting of field versus corporate personnel to reflect where we create the most value. The outsourcing of necessary but more perfunctory functions such as operations accounting, land administration, IT, tax, and HR has allowed us to operate with total personnel of just over 100 people for the past several years while retaining key technical skill sets that have both the experience and institutional knowledge for our business. In summary, at the end of the first quarter, the company had approximately $104 million in cash and cash equivalents, which represents over $2.80 per share of our common stock outstanding; an inventory of high rate-of-return, low breakeven projects; low overhead; top-tier adjusted G&A; no debt; negative leverage; a flattening production profile; double-digit reserve life; and approximately $1.5 billion of federal NOLs. This concludes our prepared remarks. Thank you for joining us today. We will now open the call for questions. Operator: We will now begin the question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. Team will be happy to help you. Welcome to Forward Air Corporation's first quarter 2026 earnings conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. Lastly, if you should require operator assistance, please press 0. I would now like to turn the call over to Tony Carreño, Senior Vice President of Treasury and Investor Relations. Thank you, operator. Tony Carreño: Good afternoon, everyone. Welcome to Forward Air Corporation's first quarter earnings conference call. With us this afternoon are Shawn Stewart, President and Chief Executive Officer, and Jamie G. Pierson, Chief Financial Officer. By now, you should have received the press release announcing Forward Air Corporation's first quarter 2026 results, which was also furnished to the SEC on Form 8-K. We have also furnished a slide presentation outlining first quarter 2026 earnings highlights and a business update. The press release and slide presentation for this call are accessible on the Investor Relations section of Forward Air Corporation's website at forwardair.com. Please be aware that certain statements in the company's earnings release announcement and on this conference call may be considered forward-looking statements. This includes statements which are based on expectations, intentions, and projections regarding the company's future performance, anticipated events or trends, and other matters that are not historical facts, including statements regarding our fiscal year 2026. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information concerning these risks and factors, please refer to our filings with the SEC and the press release and slide presentation relating to this earnings call. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this call. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law. During the call, there may also be discussion of metrics that do not conform to U.S. Generally Accepted Accounting Principles, or GAAP. Management uses non-GAAP measures internally to understand, manage, and evaluate our business and make operating decisions. Definitions and reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in today's press release and slide presentation. I will now turn the call over to Shawn. Shawn Stewart: Good afternoon, everyone, and thank you for joining us. I appreciate your interest in Forward Air Corporation. There are three main topics that I would like to cover on today's call. First, I will provide an update on the customer transition and our strategic alternatives review that we announced in our press release. Second, I will share some thoughts on our first quarter results and the logistics market in general. Third, I will comment on recent awards earned by our team before turning the call over to Jamie. Let me start with the customer transition. While no formal notices have been delivered, we are in discussions with one of our largest customers to transition a significant portion of their business to other providers. How much of the business will be transitioned and the timing thereof are still being discussed, but we are currently anticipating that the majority of what will ultimately transition will start in early 2027 and take place throughout the balance of the year. It is important to note that we believe this has little, if anything, to do with the impeccable level of service that we provide them and more about their own internal diversification strategy. We are still in active discussions to retain as much of the business as possible, and we are doing everything we can to minimize the impact to our company. I want to reiterate that we believe the customer's decision is entirely related to their own operation and supplier diversification initiatives and has nothing to do with the exceptional service we have provided them during our long-term partnership. This leads me to an update on our strategic review and the new actions we are now pursuing to enhance value and help offset this potential impact. As you know, in January 2025, the Board initiated a comprehensive review of strategic alternatives to maximize shareholder value. We have had extensive negotiations and discussions with multiple parties. However, due to a variety of factors, including the developments that I just mentioned, no actionable proposals for sale of the company were received. We continue to consider all opportunities to enhance shareholder value, and we are now pivoting our focus to pursue a sale of non-core assets, including our intermodal segment and two of our smaller legacy Omni businesses, which in aggregate represent approximately $394 million of our 2025 revenue. These targeted sales are intended to advance our efforts to delever the balance sheet and further focus our services around the core of what we do every single day, which is providing service-sensitive logistics to our customers around the world in air, ocean, ground, and contract logistics markets. With that, let us turn to the second topic, our quarterly results. In the midst of an incredibly complex integration, a fairly weak industry backdrop, changing tariff regulations, and the disruption in the Middle East, our team continues to make progress executing our transformation plan, overhauling operations, and improving the quality of our earnings results, which is reflected in our results. For the first quarter, we reported operating income of $20 million compared to $5 million last year, and consolidated EBITDA, which is calculated pursuant to our credit agreement, was $70 million compared to $73 million a year ago. Regarding the overall logistics market, domestic transportation supply has continued to tighten, driven in large part by increased regulatory and enforcement actions over the past year. These dynamics have accelerated carrier exits, particularly among smaller operators, while limiting capacity additions. A tightening supply environment is a component in rebalancing the freight market and supporting a return to more favorable market dynamics after years of prolonged freight recession. However, supply is only one side of the equation. Improvement in demand will ultimately determine the pace and sustainability of a recovery. Encouragingly, early indicators suggest that the industrial economy, which has weighed on freight demand, may be approaching an inflection point. Manufacturing PMIs have now remained in expansion territory for four consecutive months. Readings above 50 have historically served as a leading indicator for increased freight volumes, as rising manufacturing activity typically drives higher shipment of raw materials and finished goods. Additionally, the ratio of inventory to sales continues to decline. Outside of the post-COVID destocking, the current levels are at or slightly below the 10-year average, with shippers operating with conservative inventory levels amid ongoing tariff uncertainty and evolving trade policy. Depressed freight demand in the most recent past also creates the potential for a restocking cycle, which could serve as a meaningful tailwind for freight volumes when demand improves. Also, do not lose sight of the recent increase in truckload spot rates and corresponding spike in tender rejection rates. That said, while the VIX may have settled, macroeconomic risks remain. Ongoing geopolitical tensions in the Middle East and the associated rise in fuel prices introduce a key source of uncertainty. Sustained increases in energy costs could pressure manufacturers and consumers, raising input costs, compressing margins, and ultimately dampening demand. Outside of this week's announcement and subsequent sell-off in oil, if elevated fuel prices persist, they could lead to tempered demand, offsetting some of the positive momentum emerging in the industrial economy and delaying a recovery in the freight markets. While we are optimistic about the improving freight dynamics, we remain focused on prioritizing customer service and thoughtful cost management. We have been operating as one company for over two years now, and I am proud of what our team has accomplished and even more excited about our future. Finally, it gives me a great deal of pride for our team of dedicated logistics professionals to be recognized for their hard work, diligence, and commitment to our customers. Forward Air Corporation was recently named the 2026 Surface Carrier of the Year by the Air Forwarders Association, whose members are freight forwarders that rely on our expedited ground network to maintain the integrity of their airfreight schedules. This recognition reflects the strength of our network, our team's performance, and our commitment to delivering exceptional service on a consistent basis. Forward Air Corporation was also recently named to Newsweek's list of the Most Trustworthy Companies in America 2026. The annual ranking recognizes companies across industries that have earned strong trust among customers, employees, and investors. This award follows the company's selection to Newsweek's list of Most Responsible Companies in 2025. This recognition underscores the significant transformation our team has achieved over the past two years in optimizing operations, improving performance, and enhancing customer relationships. Both of these honors are a reminder of the high service standards that we are known for. They reflect the dedication of our people whose efforts continue to drive our reputation for excellence. With that, I will now turn the call over to Jamie to go through the detailed results of the first quarter. Jamie G. Pierson: Thanks, Shawn, and good afternoon, everyone. As you heard from Shawn, we reported consolidated EBITDA of $70 million in the first quarter compared to $73 million in 2025. As a reminder, the comparable results a year ago were favorably impacted by $4 million of annualized cost reduction initiatives that were actioned in 2025. The credit agreement allows for the inclusion of the unrealized and pro forma savings from these actions to be included in our historical consolidated EBITDA and requires that they be spread back in time to the period in which the expense would have occurred. On an LTM basis, consolidated EBITDA was $3[inaudible] million. Like we normally do, we have detailed the information used to reconcile the adjusted and consolidated EBITDA results on Slide 30 of the presentation. On an adjusted EBITDA basis, we reported $70 million in the first quarter compared to $69 million in the first quarter of last year. Turning to the segments. Expedited Freight reported EBITDA improved to $28 million compared to $26 million a year ago, with the exact same margin of 10.4%. The Expedited Freight segment's first quarter results also improved sequentially compared to the $25 million of reported EBITDA and a margin of 10.1% in 2025. At the OmniLogistics segment, reported EBITDA of $25 million in the first quarter of this year was in line with the $26 million we reported a year ago. The margin improved from 7.9% to 8.3% year-over-year, driven by an increase in contract logistics volume with a higher margin compared to a decrease in air and ocean volumes that have lower margin. At the Intermodal segment, we continue to see a challenging market, especially from reduced port activity. International trade-related softness among several core customers contributed to declines in shipments and revenue per shipment compared to a year ago. In the first quarter, the Intermodal segment reported EBITDA and margin were $5 million and 10.1%, respectively, compared to $10 million and 16.4% a year ago. Externally, and going back into the back half of the year, we expect to see capacity tighten as JIT supply chains for our BCO customer base loosen as tariffs stabilize, and as additional capacity exits the market due to financial difficulties and bankruptcies of smaller drayage carriers. Internally, we have a strong pipeline and have recently enacted strategic rate increases to several key accounts. Turning to cash flow and liquidity. Net cash provided by operating activities in the first quarter was $46 million, an improvement of $18 million, or more than 60%, compared to $28 million in the first quarter of last year. As for liquidity, we ended the first quarter with $402 million, which is an increase of $35 million compared to the end of 2025 and about a $10 million increase from last year's comparable $393 million. The $402 million is comprised of $141 million in cash and $261 million in availability under the revolver. And as usual, I would like to leave you with a couple of additional thoughts. The first of which is liquidity and how we manage the business, especially in uncertain times. As you heard earlier, our ending liquidity included $141 million in cash, which is the highest ending cash balance in the past eight quarters. When compared to our publicly traded peers, we are at the upper end of the spectrum when calculating liquidity as a percent of both total assets and LTM revenue. And on Slide 22 of the earnings presentation, you will also see, on a non-GAAP basis, we generated $58 million in operating cash flow in the first quarter, which is approximately $12 million better than last year's comparable result. Secondarily, as you heard from Shawn, we are cautiously optimistic about improvements in freight demand, especially in the most recent past. However, there are numerous crosscurrents, including potential continued improvement in the freight demand counterbalanced by ongoing headwinds from inflation, subject to consumer confidence, and macroeconomic risks. We will need these to play out to see if the improvement in demand is sustainable. Regardless of when we see the market fully turn in a positive direction, we plan to continue focusing on the customer, increasing sales, and tightly managing expenses. I will now turn the call over to the operator to take questions. Operator? Operator: We will now open the call for questions. The floor is now open for questions. To provide optimal sound quality. Thank you. Our first question is coming from J. Bruce Chan with Stifel. Your line is now open. Andrew Cox: Hey, good afternoon, team. This is Andrew Cox on for Bruce. I just wanted to touch on the customer loss or customer transition here. We understand that nothing is set in stone, but we are talking about 10% of total revenue. Would just like to get some more details on what segment it is in and what the margin profile is, and how much fixed or structural costs are associated with this customer, and how fast you expect to be able to flex down either the cost or backfill the revenues? Thank you. Shawn Stewart: Hey, Andrew, thank you for the question. Yes, it is quite diverse and dynamic in terms of the service offerings we provide them. It is mainly in contract logistics and some transportation. So margins are different depending on what segment of that business it sits in. We are still in conversations, so it is very fluid. Obviously, we do not want to be overly transparent today. But we are still in heavy conversations, and it is a very good relationship. So it is not a situation of anything other than what we understand and believe to be diversifying their overall supply chain portfolio between providers. Jamie G. Pierson: Yes, if I can add on there, Andrew. We are positioning ourselves to hold on to as much of this business as possible. Shawn said it perfectly, which is our belief that this is about their growth and their concentration with us. It is a simple diversification play. It is important to note that we do not see any meaningful impacts to the current year, and as you noted, it is ongoing. To date, the conversations have been positive. Stephanie Moore: Hi, good afternoon. I guess maybe going back to the situation with the customer, maybe I will ask this a little more directly than the prior question. I am trying to understand how much leeway or time you saw this coming. Has this been a conversation that has been going on for some time? It is hard to believe for a customer of this size to make these changes quickly. If you could give a little bit of color on what services this customer provides or end market, just to get some color there, maybe a little history on other customer losses. If it is not due to service and it is just diversification, that is obviously having a really large impact this year. If you could touch a little bit more about when this started happening, and then at the same time, what can be done on your end to hopefully try to retain this as much as possible? Jamie G. Pierson: Hey, Stephanie, Jamie here. In terms of the timing, it is still happening. The dialogue to date is active and constructive. We are putting ourselves in the best possible spot to hold on to as much of the business as we can. If it were a service-related issue, I might feel differently, but if we look at our service KPIs with this customer, they are incredible, in my opinion. These are my words, Stephanie, not anybody else’s. We are incredible. So it is more about their concentration with us. They have grown with us. They have been a long-term partner with us. I think it is more about a risk management perspective on their behalf than anything else. In terms of how quickly, it is May. It is going to take some time. The best that we can tell is there is not going to be any impact to 2026. It will not be until early 2027 that we see anything meaningful and material, if at all. We are not throwing in the towel, but we felt that it was the right thing to do to let you know that we are in these discussions as quickly as we possibly could. Stephanie Moore: I worded it today, and then in the release, that part of the strategic alternative review process was impacted by this development with this customer. As we think about this, how much does this weigh on the strategic process? And then once there is some definitive decision—whether it is bad or if this customer does decide to walk away—what does that mean in terms of ongoing strategic processes once this is cleared up? Jamie G. Pierson: I cannot answer that second question about what will happen after it is cleared up. In terms of the impact, anytime you have a large customer concentration like this, it is going to weigh either positively or negatively. In terms of its impact on the strategic alternatives process, the fact that you look at a customer that is approximately $250 million, plus or minus, in revenue is going to have an impact. Stephanie Moore: Absolutely. I guess one last one for me—just on the core business itself, we wanted to get a sense of the ongoing pricing environment. There are certainly some green shoots and some positives in the freight environment. If you could talk a little bit about pricing across your business and your level of comfort given we are seeing what appears to be a bit of an uptick in the underlying freight market? Shawn Stewart: Hi, Stephanie, it is Shawn. We feel really strong about pricing. We had the hiccups in a prior period, and I feel strongly that we are extremely solid in all of our revenue streams, whether it be in the global freight forwarding market, the ground LTL business, or in truckload. I am extremely confident in what we are doing both on a cost management basis and on a revenue generation basis. And as you can see, the consistency in our margins and profitability is proof that we learned a lot and have continued to enhance our sales from there going forward. Jamie G. Pierson: If I can jump in. If you look at the spot rate over the last six months, it is up about 40% since late last year. Tender rejections are up almost 2x, so up 100%. Inventory-to-sales ratios continue to lean out. PMIs have been positive for four months in a row. I think the macro indicators are pointing in our direction. My experience in this space is it generally takes three to six months for it to really take effect, and we are coming into that third to sixth month now. We are not pricing for yield, and we are not pricing for volume. We are pricing for profitability. Scott Group: Hey, thanks. Good afternoon, guys. Just to follow up on the business trends. Tonnage was down about 2% and yields ex-fuel down about 1%. What are you seeing as the quarter progresses so far in Q2? Are things accelerating? I know you said you feel good about price, but yield ex-fuel down a little bit—just a little more color would be great. Thank you. And then, Jamie, I want to clarify that you said the business that you are selling is $390 million of revenue. That is intermodal plus the two smaller Omni businesses, right? What are the two smaller Omni businesses? Any sense of profitability there? And then your intermodal business—are there containers here, or is it all asset-light? What exactly is your intermodal business? I do not think it is like a J.B. Hunt intermodal business, but maybe I am wrong. And do you own trucks, or do you have owner-operators? Lastly, with this customer loss, I know the leverage thresholds as the year plays out start to get a little bit harder. Maybe this customer is more 2027, but any conversations with the lending group at all? How should we be thinking about this? Shawn Stewart: Hey, Scott. I am going to let Jamie go because I know he wants to say he is not going to give you guidance, but great question. Let us see if he is nicer today. Jamie G. Pierson: At the risk of not giving guidance, I would say over the last two weeks of the quarter and going into April, we have seen a fairly strong volume environment from our perspective. I do not want to preordain that the recovery is here. I stick by what I said about the spot, the tender, the inventory-to-sales ratio, and the PMI—there is a lag. But I would say the last couple of weeks of the quarter and going into April, we have seen a fairly strong volume environment. On the asset sales, that is exactly right—about $390 million of revenue across intermodal plus the two smaller legacy Omni businesses. I am not going to disclose which those two are; there is confidentiality with buyers. You can see the $390 million, with roughly $230 million intermodal, so you are talking about approximately $160 million that is remaining for the two Omni businesses; it is not that much. On intermodal, it is mainly port and railhead drayage with what we call C/Y or container yard management—storage of containers on chassis—and mainly port and railhead drayage to final customers. We utilize owner-operators and we have owned and leased chassis. On leverage and the lending group, it is the right question. We ended the quarter with $40 million in cushion. This is a small step down from where we ended the year, but we ended the quarter with the highest cash balance we have had in two years and over $400 million in liquidity. If you look at liquidity as a percent of total assets or liquidity as a percent of LTM total revenue, we are at the upper echelon of that spectrum of our publicly traded peers. So $40 million in cushion is a position I can live in, and $400 million-plus in liquidity is a very good place to be. Harrison Bauer: Hey, thanks for taking my question. One quick follow-up on the Omni businesses that you are selling—about $160 million. Is there any crossover of the potential lost business of the $250 million? And then taking a step back—general competitive dynamics. With the announcement of Amazon Supply Chain Services this week, is there any relation to that and the loss of this business at all? Are there other areas of your business that are potentially exposed to what Amazon is trying to lay out and some aggressive pricing actions they may take? Lastly, in the remaining Omni business and in Expedited LTL, now that you have a handful of capacity that you may need to backfill, how are you thinking about pricing for that going forward—the trade-off of volume and price? Jamie G. Pierson: Not that I can think of, Harrison. If there is any crossover, it is certainly not material. Shawn Stewart: I will take the Amazon question. There is no correlation between Amazon and our customer. The news of Amazon is fairly new, but we know them extremely well over the years. We are not surprised by their announcement, but we also need to let things evolve a bit and see where it goes. Ultimately, we are not particularly susceptible to this announcement by our volumes, etc. We respect what they are doing and respect Amazon a lot. We will keep an eye on it and not be naive, but we are not overly concerned today as we sit here about the impact to us from this announcement. On pricing and backfilling, we are not going to get into any kind of desperate situation. We have a great organization, great solutions, and a fantastic product, and we will continue to price aggressively but with profitability in mind. We will get strategic where it makes sense in a given customer or a given origin-destination pair, but not at the detriment of the company and our overall margin. You have seen us pick up new logos and new business, and we will continue with that mantra. We are not going to overreact—we will stick to what we do well and move forward with replacing any potential loss in different areas as we see fit. Christopher Glen Kuhn: Hey, guys. Good afternoon. Thanks for the question. I just wanted to clarify. So that customer loss is $250 million—that is the total amount of the customer's business with you, and you may or may not lose all of it. You are in negotiations for that right now. Is that the case? And if you do lose some of this, would that change the margin profile—within the Omni business—or is it relatively similar to where your EBITDA margins are? And is the negotiation on price? Because the service seems pretty solid there. What would be the issue aside from just diversification? Lastly, if you lost any of it, is there a way to backfill it with another customer? Is there a plan for that? Shawn Stewart: It is a total 2025 revenue of $250 million. We are giving you a holistic view of what the revenue is. That does not, by any means, state that we are losing $250 million. That was the total spend in 2025. Jamie G. Pierson: It will be less than that. Shawn Stewart: On the nature of the discussion, it is diversification. You have to think about what we do for some of our customers—we handle an incredible amount of their supply chain. It is wise from a risk management perspective for them not to put too much of a percentage in any one particular supplier’s hands. Throughout the years, we have grown with them and provided that level of service. In our opinion, it is simply a diversification play, and that is understandable. Jamie G. Pierson: We do not talk about margins on any one particular customer. We will see how this shakes out here in the near future. The takeaway is threefold. One, the conversations have been both active and constructive. Two, we see no impact occurring in 2026 given the complexity of what we do for our customers. And three, the discussions have been fairly positive to date, and we will continue them. Shawn Stewart: On backfilling, that is the plan every day, whether we are losing customers or seeing down-trading customers. Growth is the number one strategy of our combined organization. It has been a tough market, but at the same time, you have seen us be very sustainable over the last two years. We need this market to turn, but we are not changing anything because of this announcement. We may just run a little faster, with an already sprinting organization. Jamie G. Pierson: The only thing I would add, Chris, is that, as best as I can tell going back and looking at history, we are a fairly high-beta performer. We do better in times of volatility and especially when capacity gets tight. We all do well when capacity gets tight; we seem to do better than our peers when that occurs. That is certainly part of the plan. Christopher Glen Kuhn: You have talked about this in the past, but have you seen any truckload-to-LTL conversions in your business? Shawn Stewart: We have heard “yes” because of rising truckload rates, and I do not want to get too far ahead of ourselves—back to Scott’s question, we are seeing volumes—so it could be, but we do not have enough information to say that definitively. As you have probably been watching in the true domestic intermodal market, you are seeing a lot of diversions from over-the-road onto the domestic intermodal. You are also seeing, slowly, an influx of the ocean containers coming back in. There is going to be a point of inflection where a lot of things are going to shift as the demand comes through. It could be the early stages, but do not quote me on that; we are watching it. We have heard from certain customers that the transition is starting because of the overall price of truckload. Operator: At this time, there are no further questions in queue. Let me turn it over to Mr. Stewart for any final remarks. Shawn Stewart: Thank you so much for your time, attention, and interest in our organization. In closing, in recent quarters, we have navigated a challenging environment with discipline and focus while taking actions to strengthen our company and our overall business. We are extremely confident in the foundation we are building and the steps we are taking to improve our performance. We really appreciate your time today. As usual, if you have any follow-up questions, please reach out to Tony directly. Thank you. Operator: This concludes Forward Air Corporation's first quarter 2026 earnings conference call. Please disconnect your line at this time and have a wonderful evening.
Operator: Good day, and welcome to the Quest Resource Holding Corporation First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode for the duration of the call. After today's presentation, there will be an opportunity to ask questions. To withdraw a question, please press star then 2. Please be aware that today's call is being recorded. I would now like to turn the call over to Ryan Coleman with Investor Relations. Please go ahead. Ryan Coleman: Thank you, operator, and thank you, everyone, for joining us for the Quest Resource Holding Corporation first quarter 2026 earnings call. Before we begin, I would like to remind everyone that this conference call may include predictions, estimates, and other forward-looking statements regarding future events or future performance of the company. Use of words like anticipate, project, estimate, expect, intend, believe, and other similar expressions are intended to identify those forward-looking statements. Such forward-looking statements are based on the company's current expectations, estimates, projections, beliefs, and assumptions, and involve significant risks and uncertainties. Actual events or the company's results could differ materially from those discussed in the forward-looking statements as a result of various factors, which are discussed in greater detail in the company's filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such statements and to consult SEC filings for additional risks and uncertainties. The company's forward-looking statements are presented as of the date made and the company undertakes no obligation to update such statements unless required to do so by law. In addition, this call may include industry and market data and other information as well as the company's observations and views about industry conditions and developments. Data and information are based on the company's estimates, independent publications, government publications, and reports by market research firms and other sources. Although Quest Resource Holding Corporation believes these sources are reliable and the data and other information are accurate, we caution that Quest Resource Holding Corporation does not independently verify the reliability of the sources or the accuracy of the information. Certain non-GAAP financial measures will also be disclosed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful to investors' understanding and assessment of the company's ongoing core operations and prospects for the future. Unless it is otherwise stated, it should be assumed that any financials discussed in this call will be on a non-GAAP basis. Full reconciliations of non-GAAP to GAAP financial measures are included in today's earnings release. With that, I would like to turn the call over to Perry W. Moss, Chief Executive Officer. Perry W. Moss: Thanks, Ryan. Thanks everyone for joining this afternoon. Our first quarter marked a steady monthly sequential improvement in the business from the fourth quarter, which was consistent with the seasonal trend we typically observe, though slightly better than the prior year. Revenue from our industrial customers increased primarily due to seasonality, though we did see some incremental revenue from certain customers above the usual seasonal acceleration. However, the industrial portfolio as a whole remains challenged as a result of the softer manufacturing environment. Meanwhile, non-industrial parts of the business performed largely in line or better than anticipated as our focus to diversify the business into sectors like restaurants, hospitality, and retail helped to partially offset the lower industrial volumes. Notably, our performance improved from month to month throughout the quarter and we ended the quarter with an encouraging trend. While it is far too early to determine the durability of this trend, we are cautiously optimistic given the exit rate of the quarter. This is tempered in part by recent geopolitical events as well as the risk of an extended period of elevated fuel prices. As we continue to communicate, we are acutely focused on what we can control. We continue to demonstrate a firm grasp on the operations of the company as our operational excellence initiatives deliver improved performance across the business, from exception management, wallet share expansions, billing and collections, and overall productivity and cost containment efforts. We are controlling costs very well and taking proactive measures to give ourselves incremental financial flexibility as macroeconomic conditions approve. We are very encouraged by our progress on each front and expect these initiatives to drive additional efficiencies going forward. These efforts also began to deliver important sales momentum during 2025, which included the launch of a significant expansion of an existing retail customer, the onboarding of a new full-service restaurant customer, and expanded share-of-wallet wins with two major customers. While each of these wins were delivering incremental revenue shortly after their announcement, the one-time costs associated with onboarding these clients had been masking their profitability contributions. I am pleased to report that each of these recent wins finished the first quarter as full contributors to our financial results, as we have completed the onboarding period of one-time costs to execute the service change-outs to serve these new or expanded programs. Our new sales pipeline remains active and we continue to engage with several exciting opportunities to add large national companies to our portfolio. While the overall macroeconomic environment continues to slow the overall decision-making process for many of these prospective customers, we are encouraged by the discussions we are having as the Quest Resource Holding Corporation value proposition continues to resonate with key prospective customers. We ended 2025 with better momentum, though saw opportunities get pushed into 2026. We remain very engaged with these prospects and believe that we will be able to successfully win and onboard our share of these potential customers as the macro backdrop improves and confidence returns. Just recently, we won a new contract with one of the largest franchisees in the quick-service restaurant industry. This customer is a large national operator that carries plenty of white space for wallet share expansion as we execute effectively. It also marks another important win to diversify the business and will help to offset the seasonal fluctuations of our larger industrial customers. We onboarded this new customer on May 1 with minimal service change-outs. We also remain encouraged by the number and size of share-of-wallet opportunities with existing customers, which remains a central focus of ours. Last year, we heightened our focus on this sales channel and structured more robust internal systems and processes to track, evaluate, and pursue these opportunities. We are very happy with the early successes we have had and we have broadened the number of waste streams that we are handling for some clients, added new value-added services, and captured a larger share of customer locations. Our growing pipeline of opportunities across both new sales and wallet share expansions leaves us confident that these initiatives will contribute to greater levels of organic growth for us going forward and be strong contributors to gross profit dollar growth as we continue to execute our land-and-expand strategy and optimize service levels. We also continue to diversify the portfolio as we grow in non-industrial end markets like retail, hospitality, grocery stores, and expand into new markets like health care and more. Our technology and capabilities continue to be key differentiators for us and are driving improved customer service levels and vendor management practices. Our technology platform's ability to identify exceptions in vendor invoices is central to our value proposition of cost avoidance, cost reduction, and improved service levels. The platform's ability to identify these exceptions continues to improve and, importantly, we have invested in automated no-touch capabilities to enable our team to effectively rectify these exceptions. Customer- and vendor-facing advancements like these create real value and make it easier to do business with Quest Resource Holding Corporation, but also help to optimize our internal processes and overall profitability. Overall, macroeconomic conditions and a softer industrial environment continue to flow through to reduced volumes from our large industrial customers. However, we continue to make very encouraging progress streamlining our overall business and growing in non-industrial end markets. We remain as confident as ever that we are on very solid footing for when conditions improve and as our softer year-over-year revenue is a function of volume and not one of customer attrition. The operational improvements we have implemented over the past year will drive higher leverage when conditions normalize. We are encouraged by the trend we finished the first quarter on and cautiously optimistic as we look out to Q2 and the rest of 2026. Looking ahead, our key priorities remain unchanged in 2026. We remain focused on growing the business with new and existing customers, driving margin improvements as we execute our operational excellence initiatives, continuing the development of our operating platform, improving cash generation, and reducing our debt balance. With that, I would like to turn the call over to Brett to review our first quarter financial results in greater detail. Brett W. Johnston: Thanks, Perry. Good afternoon, everyone. Revenue for the first quarter was $61.7 million, a 10% decrease from one year ago, but a sequential increase of 5% compared to the fourth quarter. The year-over-year decline was primarily driven by ongoing headwinds from certain clients in the industrial end market, which reduced revenue by approximately $4 million compared to the prior year. These headwinds are mostly confined to a few clients and are primarily related to lower waste volumes and services that are directly tied to the clients' lower production volumes. Notably, the year-ago period also included $3 million of revenue from our mall-related business, which was divested in 2025. Excluding these specific headwinds, the business continued to grow by approximately $2 million, mostly related to new clients and the expansion of client business, or wallet share, during 2025. This growth in business was partially offset by client attrition of $1.7 million, primarily related to a single client loss in 2025. While this growth was modest, it speaks to the efforts of the entire team to offset the impact of the industrial headwinds. It also speaks to what should be less noisy comparable year over year, as we have now sunset the higher-than-normal attrition experienced in 2024 and 2025. As a reminder, this attrition was isolated and mostly related to customers that were acquired and absorbed into the incumbents' waste solution. Since then, we have returned to normalized customer retention rates, which have been very sticky historically. On a sequential basis, the improvement was driven by higher seasonal volumes from our industrial customers and continued growth across much of our non-industrial portfolio, with performance strengthening across the quarter. Moving on to gross profit, in the first quarter, gross profit dollars totaled $9.7 million, a decline of almost 12% compared to the prior year but a sequential increase of 6%. This resulted in a gross margin of 157%. The declines in both gross profit and gross margin compared to the prior year were primarily isolated to the headwinds from the select industrial clients, which contributed to lower volumes as well as isolated margin pressure. These declines were slightly offset by both improved gross profit and gross margins across the remainder of the business as operating initiatives matured and margins from new clients and wallet share expansions continued to take hold. The sequential improvement was in line with our expectations provided last quarter and representative of the seasonal improvement from industrial customers as well as the contribution of recent onboarded customer wins and share-of-wallet expansions, as we have cleared the one-time costs associated with those launches. As we look ahead to Q2, we expect sequential growth in gross profit dollars as recent new business wins and wallet share expansions finished Q1 as full contributors to our financial results. Additionally, the new quick-service restaurant customer we will launch in Q2 is expected to begin ramping fairly quickly, as it requires fewer associated service provider change-outs, which means minimal startup costs and thus should contribute gross profit dollars more quickly than a typical new client win. While we expect to continue to experience some margin pressure in 2026, both in a challenged industrial volume environment as well as from the mix impact of our land-and-expand strategy, we anticipate we will be able to help offset these pressures through optimizing service levels, growing our share of wallet with existing clients, optimizing the client wins from the previous years, and continuing to drive operational improvements across the business. Moving on to SG&A, which was $8.4 million and better than our SG&A estimate for the quarter that we provided on the last call. Sequentially, SG&A grew 9% driven mainly by the resumption of our bonus expense. Our operational excellence initiatives continue to deliver strong productivity and cost containment results, and we remain focused on maintaining this discipline going forward. To that, compared to the prior year, SG&A has decreased by $3 million, a 26% reduction year over year. Moving on to a review of the cash flows and balance sheet, we ended the quarter with $1.1 million in cash and approximately $63.4 million in net notes payable. As a reminder, in March, we refinanced our ABL with Texas Capital Bank to replace the prior ABL with PNC. Concurrently, we negotiated with Monroe Capital, who holds our term debt, to provide both fixed charge and leverage covenant easements across 2026 and into 2027. Those combined efforts will provide ample cushion to operate in this challenging operating environment while we continue to focus on the execution and completion of our initiatives to drive additional efficiencies and operating leverage across the business, while also investing in driving growth through new clients and wallet share. Additionally, the new arrangement with Texas Capital Bank gives us more flexibility to use the excess availability on our ABL to make voluntary early payments on our high-interest term debt, which is currently about a 500-basis-point spread between the two credit facilities. Accordingly, during the first quarter, we made a $2 million early payment on the Monroe term debt, which will reduce interest expense and should free up additional cash to allocate toward debt paydown. We anticipate executing similar early payments as appropriate throughout the year as we work to reduce our overall cost of debt and strengthen our balance sheet. Our operating cash flow in the quarter was slightly positive, roughly $0.2 million. This was a sharp improvement compared to the prior year despite lower revenue and gross profit dollars and was driven by the ongoing optimization of our billing and collections process and our improved vendor payment processes, which both continue to drive improvements in our cash cycle. This progress was partially offset by some of the moving pieces of the ABL refinancing, which used a modest amount of cash at the time of the transaction. Our DSOs finished the quarter in the mid-70s, which was largely unchanged from the fourth quarter. Accounts receivable was up $3 million and in line with the sequential increase in revenues, but the overall trend in DSOs remains downward, falling from the 80s one year ago, and we continue to implement measures to improve our cash cycle. We remain committed to reducing DSOs going forward and believe we have incremental initiatives in our control to drive improvement. During the first quarter, we also reduced the number of working capital days to 11.5, roughly an eleven-day improvement from a year ago. Our financial strategy remains focused on managing our cost structure, leveraging our operational excellence initiatives to drive cash flow, and paying down debt. We also continue to seek ways to elevate our billing and collection and further optimize working capital. We expect these measures, along with our focus on continuous improvement, to improve our cash cycle, strengthen our balance sheet, and provide incremental financial flexibility as the operating landscape improves. With that, I will turn the call back over to Perry for some closing comments before we open it up for Q&A. Perry W. Moss: Great. Thank you, Brett. Our first quarter saw improved performance from the fourth quarter, with results getting better throughout the quarter. Some of this was the typical seasonal acceleration, but it was modestly better than the prior year. It is also clear that the business is benefiting from the team's strong execution, and it is evident in the numbers driven by the now fully onboarded recent new wins and wallet share expansions. It remains a difficult operating environment, but we are confident that we are better positioned to drive improved financial performance. We believe that with continued execution, we will be well on our way to delivering improved shareholder returns and achieving a valuation that is more reflective of the inherent value of the business. With that, I would like to turn the call over to our operator to move us to Q&A. Operator? Operator: We will now open the call for questions. At this time, we will pause just momentarily to assemble our roster. Our first question will come from Aaron Michael Spychalla with Craig-Hallum. Please go ahead. Aaron Michael Spychalla: Yes. Good afternoon, Perry and Brett. Thanks for taking the questions. Maybe first for us, on the new win in QSR, congrats on that. Could you give details you can give on size, number of locations? You talked a little bit about white space for land and expand, so just curious on how many waste streams. And then it sounded like minimal service provider changes, so it sounds like that can ramp pretty quickly as well. Perry W. Moss: Yes, that is right, Aaron. As you know, we do not give specific details about these clients, but this is consistent with all of our new growth targets being seven- to eight-figure. So this is a seven-figure account. We landed a little over 50% of the portfolio, so there is plenty of room for continued expansion. This came from another asset-light provider, so they saw value in the Quest Resource Holding Corporation program over the program they were currently on. Early reports indicate the other award winner was also an asset-light company, and some early indications are that our launch process and transition is much smoother than our competitor, so that leaves me optimistic that there is some growth potential there. The material streams here are typical municipal solid waste and recyclables. Aaron Michael Spychalla: Understood. And then on the share-of-wallet initiatives, is there a way to think about just potential growth you see there, whether it is penetration rates or average number of waste streams? It just seems like you saw good success coming out of the last year and are optimistic moving forward. Perry W. Moss: Yes. As you know, we put some additional focus and discipline around our share of wallet beginning last year. We do not really talk about all of the share-of-wallet wins that we have had. We have had several dozen of those wins, but some of them are not material enough to really mention. The share-of-wallet opportunities that we typically talk about again fall into that same category as new business, so these are large opportunities to expand. We have, I would say, five or six opportunities with some of our largest customers to bring on a whole other segment of their business, and we are in very opportunistic discussions with them. We have rolled out plans on how to implement this new business. The business has not been sold yet, but the conversations are very positive, and I expect to see a lot more growth in the share-of-wallet sector. If you recall, because of the uncertainty in the general economy, we decided that instead of only focusing on new business, which we are still doing, we would put added emphasis on share of wallet because these are existing relationships. These are customers that already trust us; they already know that we execute. So it is an easier yes than with a new prospect. I would tell you that we do not give the value of our pipelines. The new business pipeline is very robust; the share-of-wallet pipeline is about 50% of the size of the new business pipeline, so it is significant. Aaron Michael Spychalla: Alright. Thank you for the color there. And then just maybe one last one. What are you seeing on inflation across the commodity space on the business? Any impact to customer decisions or your vendor network, just how you are managing that and thinking about it moving forward? Perry W. Moss: Yes, it is a really good question. Certainly with the current fuel situation, we got out in front of this and started working with our vendors and our customers before this really fast ramp-up in fuel. We have good protection in our contracts where uncontrollable costs can be passed through. But one of the value propositions that we deliver to our customers is we always fight on their behalf. So instead of simply just taking on cost increases and passing them through, we do everything within our capabilities to push those off or to minimize them. I would say that we have not seen anything significant to affect the business so far, but we have been proactively working on plans should significant cost increases come through. But so far, so good. Aaron Michael Spychalla: Thank you for taking the questions. I will turn it over. Operator: Our next question will come from Gerard J. Sweeney with ROTH Capital. Please go ahead. Gerard J. Sweeney: Good afternoon, Brett and Perry. Thanks for taking my call. Do you ever disclose, or even directionally, how big the industrial business is for you guys in terms of revenue? Brett W. Johnston: No, Jerry, not directly. We have tried to do a good job over the last year or so to call out the variance that is taking place with those select customers within the industrial group. As a reminder, the industrial group is larger than the clients that are driving the variances. We are only speaking to the select couple of clients that sit in an isolated industry market as the variance, but we have not called that out largely. Gerard J. Sweeney: Got it. Alright. The reason I ask is we are starting to see data from the ISM that is turning positive for the first time in years. I think there is some freight data that is showing maybe some price increases, indicating a real goods economy is, dare I say, starting to expand a little bit. These are maybe forward-looking indicators. I am just curious if you have any thoughts on that, or are some of these industrial clients sort of in their own little select world that may not be benefiting from what I am talking about? Perry W. Moss: Jerry, I think these few customers that Brett referenced are in a specific category of the industrial manufacturing sector that has really been pretty soft. I think we have said they operate in the ag sector. If we look at sequential volume increases from Q4, they were largely what we would expect. But if you compare the increase to last year, the increases that we realized in Q4 this year were slightly better. We are not predicting any significant increase in volume yet. We are cautiously optimistic. We did see some good trends. We do not control our customers' production volumes. If they continue to perform like they did, particularly in March, I think we will see some nice trending. We have built this business over the last year to take every advantage of any tailwind that we can get. We just have not had any. March, we may have had a little breeze, and I think we took advantage of it. So if those early indicators flow through to these specific customers in the ag sector, I think we will benefit from that. Brett W. Johnston: I would also remind you, from a year-over-year perspective, if you look back at when we started really talking about those struggles on the industrial side, it was in Q1 of last year. So from a year-over-year comparison, we are kind of sunsetting some of those challenges. We did see some additional reductions across last year, but the bulk of the decline in those clients came largely in 2024 and even 2025. Despite some continued pressure there, maybe we do not get back to the same volumes we had a year and a half ago, but from a year-over-year comparison, it is not going to hold us back from showing growth. Gerard J. Sweeney: Got you. Switching gears, the QSR win. I think you talked a little bit about it, but I do not know if I caught all of it. You said, I think, you had 50% of the portfolio, and it sounded like another asset-light company got the other 50% of the portfolio. I am just wondering if that is stores or locations, or was it service lines? Perry W. Moss: Jerry, that is a good question. Those represent locations. I do not have that based on service lines. I would expect that it would probably be linear, that we got a little over half the locations as well as a little over half of the service lines. Gerard J. Sweeney: Got it. Is that QSR in meat, fish, or chicken? Perry W. Moss: The answer is yes. These are major brands that are very recognizable. In fact, our end came from a referral from one of our corporate customers who operates some of those brands and made the recommendation that this franchisee should look at our model. Gerard J. Sweeney: Got it. Alrighty. I will jump back in queue. Thanks a lot. Operator: This concludes our question and answer session. I would like to turn the conference back over to Perry Moss for any closing remarks. Perry W. Moss: Great. Thank you, operator. Thanks to all of you for joining this afternoon. We always appreciate your support and continued interest in Quest Resource Holding Corporation, and we look forward to updating you all next quarter. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Hello, everyone. Thank you for joining us, and welcome to Somnigroup First Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Lauren Avritt, Director of Investor Relations. Lauren, please go ahead. Lauren Avritt: Thank you, operator. Good morning, and thank you for participating in today's call. Joining me today are Scott Thompson, Chairman, President and CEO; and Bhaskar Rao, Executive Vice President and Chief Financial Officer. This call includes forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve uncertainties and actual results may differ materially due to a variety of factors that could adversely affect the company's business. These factors are discussed in the company's SEC filings, including its annual reports on Form 10-K and quarterly reports on Form 10-Q. Any forward-looking statements speak only as of the date on which it is made. The company undertakes no obligation to update any forward-looking statements. This morning's commentary will also include non-GAAP financial information. Reconciliations of the GAAP financial information can be found in the accompanying press release which has been posted on the company's website at www.somnigroup.com, and filed with the SEC. Our comments will supplement the detailed information provided in the release. And with that, it's my pleasure to turn the call over to Scott. Scott Thompson: Good morning. Thank you for joining us on our first quarter 2026 Earnings Call. I'll begin with some highlights in the quarter and then turn the call over to Bhaskar to review our financial performance in more detail, and discuss our reaffirmed 2026 [indiscernible] guidance. After that, we'll open up the call for Q&A. In the first quarter of 2026, net sales increased a healthy 12% to $1.8 billion. Adjusted EBITDA increased 20% [indiscernible] $297 million, and adjusted EPS increased a robust 20%, [indiscernible] per share. We are pleased with these results, particularly against the backdrop of heightened geopolitical tensions and winter weather disruptions in the U.S., all of which weighed on the industry demand. We believe global bedding demand declined mid-single digits in the first quarter, which was below our expectations that demand would be flat to slightly positive during the quarter. We believe our performance reflected the strength of our business model and its ability to perform across varying market conditions. This has allowed us to continue to extend our leadership position in the industry. Turning to our first highlight. We expanded EBITDA margin by over [ 100 basis ] points and grew adjusted EPS by 20%. We accomplished this on 12% sales growth demonstrating the operating leverage embedded in our business model. We also delivered record first quarter operating cash flow, which we deployed towards debt reduction. We ended the first quarter at 3.1x leverage, and [ are on ] track to return to our targeted range of 2 to 3x adjusted EBITDA in the next few months. Our second highlight. Our North American Tempur Sealy business outperformed the broader market. Tempur Sealy North America delivered mid-single-digit wholesale sales growth year-over-year on a like-for-like basis, driven by investments in high-quality advertising, continued momentum in [indiscernible] line and increased balance of share at [indiscernible]. Looking to the back half of the year, we expect the launch of our new [indiscernible] lineup two, optimize price architecture within the broader portfolio, support higher average selling price for our retail partners, strengthen our position at higher pricing. We expanded our offering with additional SKUs at the top of the price range, targeting the customer who has demonstrated continued resilience, through this cycle. It represents a significant growth opportunity. We'll support the launch with new national and [indiscernible] advertising focused on differentiated luxury product and on broader health and wellness benefits of the [ group sleep ]. Our third highlight, our international business continued to capitalize on long-term growth opportunities, delivered double-digit growth on a reported basis and mid-single-digit growth on a constant currency basis. [ International ] performed the broader industry in the quarter, extending a multiyear track record of solid growth across our key markets. This performance reflects continued disciplined investment in distribution and marketing, a resilient supply chain, strong local execution and the strength of our Tempur brand. We're pleased with our results in a challenging environment, and our international business remains well positioned for continued growth over the long term. Our U.K.-based bedding retailer Dreams once again outperformed the market this quarter, reinforcing its position as a category leader. Strong brand awareness and share of voice, combined with effective execution, growth solid customer engagement and healthy order volume. Our ongoing operational discipline and a continued focus on product quality, the customer experience supports further growth in this very competitive U.K. market. Our fourth highlight, Mattress Firm outperformed the broader U.S. market, supported by its scale, depth of category expertise and a well-curated merchandising assortment. Merchandising actions taken over the past year have better position Mattress Firm business to meet customer needs across price points while maintaining a strong focus on quality and innovation. During the quarter, we further deepened relationships with suppliers aligned with our quality standards and marketing commitment. Our proprietary Sleep expert model continues to differentiate the in-store experience, supported by one of the industry's largest and most highly trained sales force, which has been augmented by ongoing technology investments. We remain on track with our previously announced $150 million store refresh program targeting completion in 2027. To date, we have spent approximately $40 million on store refresh program, all funded operating cash flow. Additionally, the rollout [indiscernible] is progressing well with national depletion expected by year-end. With that, I'll turn the call over to Bhaskar. Bhaskar Rao: Thank you, Scott. In the first quarter of 2026, consolidated sales were solid $1.8 billion, and adjusted earnings per share was $0.59, up 20% over the prior year. There are approximately $26 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility. As a reminder, year-over-year comparisons are impacted by the acquisition of Mattress Firm in early February 2025, and the related divestiture of Sleep Outfitters, and certain Mattress Firm retail locations in the second quarter of 2025. I will be highlighting like-for-like comparisons fined as reported numbers adjusted for the acquisition and divestiture impacts normalized for these items in our commentary. Now turning to Mattress Firm results. Net sales through Mattress Firm were approximately $886 million in the first quarter. Same-store sales were flat, outperforming a market we believe was down mid-single digits in the quarter. Mattress Firm adjusted gross margins decreased 360 basis points to 31.5%, including a 40 basis point headwind from the stub period. The remaining decline was primarily driven by promotional expense and product mix combined with some fixed cost deleverage. The impact of product mix on gross margin was primarily driven by increased balance of share of Tempur Sealy products as Tempur Sealy's supply contract is structured and to provide a portion of Mattress Firm's economics in the form of cooperative advertising credit, which reduces Mattress Firm's operating expenses. When looked at on a conforming basis, there is no material impact on EBITDA margin from the product mix change. Mattress Firm adjusted operating margins declined approximately 230 basis points to 4.9%, including a 150 basis point headwind from the stub period. The remaining decline was primarily driven by the decline in gross margin, partially offset by the favorable cooperative advertising dollars I mentioned a moment ago. Turning to Tempur Sealy North America. North America sales grew 5% on a like-for-like basis. With like-for-like net sales through the wholesale channel increasing approximately 8% in the first quarter, our sales with third-party retailers declined 4% after normalizing for [ 4 ] models. Like-for-like sales through the direct channel declined 12% in the first quarter, driven by reduced customer traffic at retail stores an e-commerce site, as we reduced our e-commerce advertising in the quarter. However, we have seen a marked improvement in recent trends. North America adjusted gross margins increased a robust 1,300 basis points to 58.3%, including a 600 basis point benefit from the stub period. The remaining increase was primarily driven by realized synergies and operational efficiencies with lower product launch costs as well. North America adjusted operating margin improved 710 basis points to 24.3% in the quarter, including a 230 basis point benefit from the stub period. The remaining increase was primarily driven by the improved gross margin, partially offset by investments in cooperative advertising as noted a moment ago. Now turning to Tempur Sealy International results. International net sales grew a robust 16% on a reported basis and 7% on a constant currency basis. Our international gross margins increased 140 basis points to 50.4%, primarily driven by favorable mix and operational efficiencies. Our international operating margin increased 160 basis points to 18.4%, driven by the improvement in gross margin and fixed cost leverage. I'd like to spend a moment discussing commodity inflation and our related pricing actions. Its historical industry practice to adjust pricing as input costs rise. Like others in the industry, we have recently announced modest pricing actions designed to offset inflationary pressures tied to oil-derived inputs, including key chemicals as well as gasoline, diesel. Importantly, the structure of our supplier contracts provide us with early visibility into inflationary cost pressures before they flow through our P&L. This visibility allows us to thoughtfully implement pricing actions to offset inflation while minimizing any material interim exposure. This is a structural competitive advantage. We expect commodity inflation will not impact Tempur Sealy's full year '26 earnings, but will modestly quantify our normal seasonality as the timing of cost increases hit slightly before our pricing actions are fully implemented. This is by design to give our retailers time to adjust their merchandising and advertising plans. As a result, the second quarter will have an approximate $10 million headwind to Tempur Sealy profits. We expect that this will fully offset in the third and fourth quarter with our announced pricing action taking effect following the July 4 promotional period. On a full year basis, we expect the pricing action to be dollar neutral to Tempur Sealy earnings, effectively offsetting the inflationary impact. We anticipate this will result in a $50 million pricing lift to the back half of 2026 global Tempur Sealy sales on a like-for-like basis with an expected annualized lift of approximately $100 million. Now turning to sales and cost synergy targets. In the first quarter, we achieved $15 million net benefit in adjusted EBITDA from sales synergies, and another $50 million benefit from cost synergies. In order to support the summer selling season and leveling out of manufacturing for seasonal fluctuation, batches firm built their inventory of Tempur Sealy products in the quarter. The planned inventory build is reflected in intercompany sales for the first quarter. However, we never realized any sales benefit to [indiscernible] EBITDA and [indiscernible] Tempur Sealy products sold to Mattress Firm is sold through to the end consumer. Now moving on to Somnigroup's balance sheet and cash flow items. At the end of the first quarter, consolidated debt less cash was $4.5 billion, and our leverage ratio under our credit facility was 3.1x, demonstrating our strong cash generation and disciplined capital allocation approach. Turning to cash flow performance. In a muted market, we delivered record first quarter operating cash flow of $247 million and record first quarter free cash flow of $186 million. We have reduced our net debt by nearly $500 million over the trailing 12 months of fully supporting growth initiatives and returning over $250 million to shareholders in dividends and buybacks. We expect to return to our target leverage ratio of 2 to 3x over the next [indiscernible]. Now turning to 2026 guidance. As a reminder, our guidance considers the elimination of intercompany sales between Mattress Firm and Tempur Sealy, which we expect to present approximately 23% of global Tempur Sealy 2026 sales. [ Intercompany ] eliminations in accordance with GAAP, will reduce Tempur Sealy sales but be margin accretive and neutral to dollars of operating profit. Please note that we acquired Mattress Firm in February 2025. As a result, our first quarter and full year '26 reported results will reflect the impact a little over 1 additional month of Mattress Firm financial results. We expect adjusted earnings per share to be between $3 and $3.40 for the full year. This guidance range contemplates a sales midpoint of approximately $7.8 billion after intercompany eliminations. Our annual guidance also reflects our expectation that the global bedding industry will be flat to slightly down year-over-year. The announced pricing actions across our global markets, Tempur Sealy North America, like-for-like sales growing mid-single digits, international business growing mid-single digits and like-for-like mattress firm sales growing low single digits. We also expect reported gross margin slightly above 45%, and nearly 100 basis points of net margin expansion from operational efficiencies, including synergies and operating leverage partially offset by the impact of Tempur Sealy pricing actions, which are intended to neutralize commodity inflation dollars, which will be margin dilutive. Our 2026 outlook also contemplates our assumption for Tempur Sealy brands and private label to be in the low 60% of Mattress Firm total sales. This represents about an incremental $40 million of EBITDA benefit for 2026 compared to '25. And approximately $700 million of advertising investments. All of which we expect to result in adjusted EBITDA of approximately $1.45 million at the midpoint. Regarding capital expenditures. We expect 2026 CapEx of approximately $225 million, which includes $75 million of investments in Mattress Firm store refreshes and brand wall installation. We expect our CapEx to normalize $200 million in the future years. And for at least 50% of our free cash flow in '26 to go toward quarterly dividends and share repurchases. Now I would like to flag a few modeling items. For the whole year 2026, we expect D&A of approximately [indiscernible] million, interest expense of approximately $230 million, a tax rate of 25% with a diluted share count of 213 million shares. Note that our guidance does not include any impact for the closing of the proposed combination with [ Leggett & Platt ] as the timing is dependent upon regulatory review and approval by [ Leggett & Platt ] shareholders. We expect the transaction would be accretive to adjusted earnings per share within the first year of operations before any synergies. Finally, a bit of color on guidance. The midpoint of our guidance assumes that consumer confidence, which has been pressured by geopolitical conflict will normalize as we progress through the year. If these pressures were to continue through the year-end, we would be tracking closer to the low end of our guidance. With that, I'll turn the call back over to Scott. Scott Thompson: Thank you, Bhaskar. Well done. Before opening the call up for Q&A, I want to quickly address our recent announced agreement to combine [ Leggett & Platt ]. As we announced last month, we signed a definitive agreement to combine with Leggett, an all-stock transaction valued at approximately $2.5 billion, including the assumption of that. We expect this transaction to close by year-end subject to satisfactory customary closing conditions. Following the close of the transaction, Leggett is expected to operate as a separate business unit within Somnigroup, similar to Tempur Sealy, Mattress Firm and Dreams. And to maintain its offices, including its primary location in [ Carthage ], Missouri. We're proud to have Leggett & Platt join us and believe the combination is beneficial to all stakeholders of both companies. We expect the combination to leverage the individual strengths of Somnigroup and Leggett & Platt to realize 5 strategic benefits. First, the combination continues our vertical integration strategy and enables us to closer collaborate between component engineering, manufacturing, design and customer trends, supporting accelerated innovation cycle and more cost-effective consumer-centric product construction. Second, this combination provides access to incremental addressable markets beyond [indiscernible], expanding Somnigroup's long-term growth opportunities and cash flow generation. Third, the combination is expected to lower Somnigroup's net financial leverage and increase its flexibility. Fourth, the combination is expected to be accretive to adjusted earnings per share before synergies and in the first year post closing, and significantly increased peak earnings in a normalized bedding market. And fifth, the combination presents cost synergy opportunities. In total, we expect synergies to result in at least [indiscernible] million of EBITDA on a fully implemented annual run rate basis. With that, operator, we're done with our prepared remarks, please open the call up for questions. Operator: [Operator Instructions] Your first question comes from the line of Susan Maklari with Goldman Sachs. Susan Maklari: I want to focus on demand, Scott, especially with the comments around pricing and consumer confidence. Can you talk about price elasticity across the business and how you're thinking of your ability to continue to drive industry relative outperformance despite all the headwinds that we are seeing on the consumer? Scott Thompson: Sure. And thank you for your question, Susan. I think when you look at elasticity, I guess the best thing to look at is really the closing rate. And if we look at closing rate, either whether it be in our own Tempur stores or you look at Mattress Firm, it continues to improve. So what that tells me is, when customers show up at the store, they're looking for products. They then get full discovery of price and where the closing rate is going up. So it doesn't appear the elasticity is very high. I think that's probably the best evidence in looking at that particular issue. As far as outperforming the industry, as we've talked about numerous times, over the years, we continue to improve our competitiveness in the marketplace. And where I look, whether it be in our recent price increase, which I think will be among the lowest by any of the manufacturers, and that has to do with the way we handle the inflation is certainly a competitive advantage. When I look at our advertising share of voice in the marketplace, this would be [ around ] the world. It continues to be top of class what information I get informally on other manufacturers, they would appear to be not dealing with the current market conditions as well and maybe being a little challenged from a capital standpoint. So certainly, our cash flows and balance sheet are a competitive advantage. So I think we'll continue to outperform the industry, and I think the industry will normalize once you get through some of the geopolitical issues that we all know about. Operator: Your next question comes from the line of Bobby Griffin with Raymond James. Robert Griffin: Thanks for the time Scott, I wanted to first -- I want to ask on the [ Stearns & Foster ] launch in 2H. We've been around the business a lot. We've seen a few different launches from Stearns, some starts and go kind of in the product. But the structure of SGI is much different today with all the advantages you've highlighted. So can you maybe unpack how that launch is set up to play out and how this launch might be a little different in where that opportunity is for that product? Scott Thompson: Sure. Great question, Bobby. First of all, we talked about [indiscernible] you have to realize that we have cannibalized some of [indiscernible] As we move Sealy [ Posturepedic ] up from a price standpoint. So we self did that. And so this is the last piece of getting our pricing architecture right between all 3 brands. Tempur Sealy [indiscernible]. And so that opens up some more addressable market, and we also moved the price bracket up. [indiscernible] Foster. Primarily you might find interesting [indiscernible] pushed by our retailers who wanted a higher price Stearns & Foster. So that is new. We also leaned into hybrids in that area, and hybrids have been good in the bedding market in the U.S., as I know you know. And quite frankly, the last Stearns & Foster hybrid, we didn't hit the mark perfectly. So that's a major upgrade. I think the other thing I would point to is with Mattress Firm as part of the family, we have very strong support from Mattress Firm, from an advertising slot commitment, training and probably a higher degree of support than we would have had without having them in family. I think those factors probably combined with the national advertising gives us more momentum on this launch than we've probably had in any launch in Stearns & Foster's history. Operator: Your next question comes from the line of Rafe Jadrosich with Bank of America. Rafe Jadrosich: I wanted to just follow up on some of the comments on pricing and the input cost inflation. Just first, can you just talk about the input cost inflation you've seen sort of year-to-date from Iran, the exposure on the chemical side, and then what you're expecting in the back half of the year? And then [indiscernible] that pricing that you're talking about, the $100 million annualized. Is that the way to sort of think about the magnitude of the cost inflation you're facing and covering that on a dollar-for-dollar basis? Scott Thompson: Sure. I'll let Bhaskar give you some of the details. But as you probably know, the industry has a history of passing on inflation costs through the system. Others actually [indiscernible] passed their costs through earlier than we did, and we were the last to pass through. And my perspective is that that's passed through very effectively as it has historically. Bhaskar, you want to give, kind of, the details? Bhaskar Rao: So just from a pricing standpoint or an inflation standpoint, what we've discussed in the past is the nature of our relationships and strategic partnerships that we have is that we do have some time to react, and assess and evaluate before we put price in. So from a commodity inflation standpoint, on an annualized basis, Think about it as about $100 million. And on -- as you think about the rest of the year, think about that as about $50 million. So $50 million of inflation. So what we're doing to offset that is in the second quarter, we will have some transitory impact, call it, [indiscernible] that will be made up in the back half of the year. From a pricing standpoint is that we've neutralized that impact, as you pointed out, is that the annualized impact of our price increase is $100 million, which for dollar for dollar, will offset the inflation that we are anticipating. However, all that said is that we do have a bit of transitory items in the second quarter. Where that is coming from, as you can imagine, given what's happening from a geopolitical standpoint, the vast majority is coming from oil-derived items. So whether it be the chemicals, diesel, purchased foam, et cetera, that's the vast majority of [indiscernible] where we're seeing the inflation. Scott Thompson: So I think the other thing I'd point out when you talk about the inflation is when you look at the price increase that we took, it's probably overall about a 4% increase, and a 4% increase in this business is not disruptive to customers. Because quite frankly, customers don't shop for the product but once every 8 years. So it's not nearly as [indiscernible] something on gas prices. Bhaskar Rao: That's right. I guess where I would close with that, as I mentioned, in the second quarter, we have a bit of exposure. So what we're really pleased about is our EPS growth that we saw in the first quarter, call that about 20%. And in a market that was a little bit different than what we had anticipated. We call the industry expectations down a little bit. The quarter has started off well. There are some transitory items related to the commodities that I spoke to. So as you think about the second quarter from an EPS growth standpoint, is in a very challenged market is that we would still expect EPS growth of somewhere between 5% and 10%. Scott Thompson: And you're going to pick up the headwind you've got on commodities in the second quarter, you're going to pick that up in the third and fourth quarter of this year. So the annual number doesn't change due to commodities, right. Bhaskar Rao: That's right. Operator: Your next question comes from the line of Peter Keith with Piper Sandler. Peter Keith: A nice job navigating a very fluid environment. Maybe just on the full year revenue outlook. I was just wondering if you could just kind of give us the puts and takes and how you adjusted the number slightly from a couple of months ago. It seems like you did come down maybe by $100 million lower history backdrop. But I'm guessing you're seeing better share gains and maybe you had factored in and then the price increase if that flows through in the revenue for the back half as well? Bhaskar Rao: Great question, Peter. You've got it. It's relatively straightforward. Industry expectations call it, where we were before is kind of flat up where we're at the midpoint is, call it, flat to slightly down. So that's a drag [indiscernible] headwind versus where we were. You also had correct is that the price increases that we put in place for the back half of the year, that is an uplift. That's inclusive of the share gains. So net-net, we're a bit off the midpoint, call it, 7.9% previously at the midpoint, 7.8%. So just a few moving pieces. Operator: Your next question comes from the line of Daniel Silverstein with UBS. Daniel Silverstein: Could we please double-click on Mattress Firm's performance year-to-date? How is store traffic and ticket evolved over the last few months? And then on margins, what are some of the promotional investments you are making? And how are you balancing the flow-through of margins against driving additional share gains? Scott Thompson: Sure. [indiscernible] Mattress Firm. Same-store sales for the quarter were flat, yes, from that standpoint. Post closing of the quarter, same-store sales have been slightly up in April? Bhaskar Rao: Correct. Scott Thompson: [ He asked ] about promotional, I think, with the relative performance, I think that's outperforming our perception of the industry for sure. Promotional [indiscernible] obviously advertising, although advertising is slightly down and then finance for customers you asked about what's driving sales. Clearly, ASP has been a big winner. And I don't think that's just for Mattress Firm. I think that I would say, from what we see in our mix of product sales, ASP has been very strong for the industry as higher-end customers [indiscernible] clearly shown up. Traffic, traffic is down. Traffic's down, I'm going to say, single digits. And I think that's consistent with our perception of the industry. Anything else at in that question. I think I got it. Bhaskar Rao: I mean what I would say, if I were to pan back a little bit, is we feel thrilled about our performance and all the geos that we operate in, we continue to take market share, gain versus a competitive set through execution, advertising, great product. Just focusing on the U.S. or North America a bit is that -- all in, our [indiscernible] business captured a fair amount of share. The others performed well in a challenging environment as well. So we feel good about our relative performance and let's call it, an interesting environment. Scott Thompson: Yes, I think the other thing we should call out can that clearly is that Canada and Mexico had a tough quarter. And I don't think that was company specific. I think that was market in they were specifically weaker than the U.S. On a consolidated basis, certainly, a strong performance. Operator: Your next question comes from the line of Jonathan Matuszewski with Jefferies. Jonathan Matuszewski: A recent theme that's emerged following the Analyst Day was kind of the evolution of upper funnel versus bottom funnel marketing for the industry. Curious what you're seeing -- what you saw materialize in 1Q, maybe relative to the back of '25? And are you seeing retailers outside of Mattress Firm continuing to prioritize bottom funnel in terms of conversion? Or do you see progress in [indiscernible] in terms of overall replacement and the like? Scott Thompson: Sure. If you look at Mattress Firm, we continue to move up the funnel, some carefully monitoring that activity, but clearly leaning a little bit higher up in the funnel. Some of the other large advertisers, I think, are similarly rebalancing. And then I'd just tell you, look, it was a tough quarter for the retailers. And so in that period, quite a bit of advertising got pulled down in the industry, making our share of voice even stronger in our message even stronger. So I'd say we made some slight progress, but at the same time, a pretty tough market for the advertisers to advertising it. Operator: Your next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Bradley Thomas: Wanted to ask Scott about the performance at the non-Mattress Firm third-party channels that you sell into in North America. I believe you said that, that was down 4% in the quarter. So it looks like maybe in line to slightly better than how the market performed. But can you just give us a sense of what you're hearing from those partners? And any specific strategies, or goals as you think about partner growth, or growth, flat growth, et cetera? Scott Thompson: Sure. We call those the other, other. And to be clear, that would be U.S. retailers non-Mattress firm doesn't include Canada in Mexico. That number was up 4%, yes? Up -- down 4%. And so I think you said it right, with a market that was probably down 5% plus a little is probably a slight outperformance in the other category. I think those retailers are focused -- what they've always been focused on and success of their business which is giving them a popular product, help drive customers into their showroom deliver on time, and all those things. I think they're excited to see Stearns & Foster come. I think they know there's some upside there [indiscernible] line continues to do very well. Constant frustration with the other retailers just on traffic, and I think that's universal. And they certainly appreciate the strength -- the strength of our advertising. As far as additional slots, we will get some incremental slots in the new Stearns launch, but they aren't going to be material to the total revenues of North America. But those would be -- we'll get some incremental slots there. Haven't seen any deterioration in our positions at any of the other retailers. And I think on the go forward, it's really about velocity. And that goes to having a great sales force with quality and quantity of our advertising. And quite frankly, what our competitors do and how they perform. Operator: Your next question comes from the line of Keith Hughes with Truist. Keith Hughes: Just want to turn back to the margins, particularly gross margins on Mattress Firm. I know there was some adjustments to be made on the comparison differences. But if you could talk a little bit more about what caused the compression in gross margin year-over-year? Bhaskar Rao: Absolutely. So when you look at gross margin is that one has to think about the entire P&L. So let me bifurcate out what that means. So call it a few hundred basis points of a decline year-over-year. The vast majority of that is a result of the Mattress Firm entity increasing its share of the Tempur Sealy family. The way that relationship works is that there are some volume rebates, which impact gross margin. However, there are credits associated with cooperative advertising that you don't see in gross margin, is you see it in the operating expense line as a reduction. When you put both of those items together, what you'll see is a [indiscernible] of a decline year-over-year, and that's principally related to just leverage going through that entity. Scott Thompson: Yes. And I'd kind of give you a watch out on some of that. We run -- we think about the business in total. If Mattress Firm, we're an independent company, okay, they would have come to the Tempur Sealy side of the house. and probably negotiated some volume, some volume incentives and their P&L may look different. We don't spend a lot of time in the group, slotting as to where synergies go or renegotiating incentive bonuses, or anything in Mattress Firm. So there's no question some of quite a bit of a benefit of [indiscernible] showing up in the Tempur Sealy, silo as you look through as opposed to matter. So I wouldn't disaggregate the business and think about it separately because we don't run it that way. We run it as part of the [indiscernible] family. Because I'm sure the [indiscernible] from people as independent would have come over and put it is hard on their supply contract. And we're not changing supply contracts, or benefiting Mattress Firm for some of that performance. Operator: Your next question comes from the line of Jeff Lick with Stephens. Jeffrey Lick: Scott, at the Analyst Day, you and the team were very deliberate about talking about prior to [indiscernible] ownership of [indiscernible], how Mattress Firm sometimes got a little aggressive with discounted pricing and playing vendors off one another. And in your -- in the prepared remarks, you guys -- you talked about pricing architecture. Now that you guys are up to the 62% share, you're going to be running through that in the back half. I'm curious if you could just talk about how that dynamic will kind of work and manifest itself into results now that there seems to be you guys are playing the role of the, kind of, price governor in not being deteriorating price, or just [indiscernible] Scott Thompson: Yes, clearly, and you're mainly talking about UPP and the pricing framework in the marketplace and making sure that all retailers honor the UPP structure. And certainly, Mattress Firm is honoring the UPP structure. And quite frankly, when they do, it's beneficial to them. As they found out, not just since we bought them but over time. And we continue to work with other retailers if they don't follow that process. So look, I think that's healthy for [indiscernible] I think it's healthy for the industry. And I think it's been a net positive and they've done a great job on pricing discipline. Operator: Your next question comes from the line of Peter Keith with Piper Sandler. Peter Keith: I wanted to circle back on the chemical shortage. We've been getting a lot of questions on it. So it's only a $10 million impact for Q2, which I think is a positive. But could you address two things. Number one, how much inventory of chemicals in terms of months of supply, are you keeping on hand now? And then secondarily, with this polyol shortage, could that play out into the back half of the year, perhaps with some shipment delays or product outages. I know in the past, you've leaned more towards high-end product like back in 2021. So if you could just address the kind of the puts and takes around this [indiscernible] shortage. I appreciate it. Scott Thompson: Yes. I'm going to [indiscernible] a crack at it. I think when it first showed it [indiscernible], there was a worst-case scenario that was worked through and mitigated in the word shortage. Was probably an appropriate possibility. I think with what we know today, I don't think the industry is going to have shortages as far as outages from a supply standpoint. There is pricing impact, okay? And that's been rolled through the industry. But I'm not nearly as concerned about shortages, and I'm not hearing comments about [indiscernible]. And that's an industry comment. When you then go to Tempur Sealy specifically, Obviously, we have an advantaged situation because of our volumes, okay. And obviously, we have a large amount of safety stock safety stock is in place for one -- these kind of events, which you've referenced, but also possible hurricane issues and stuff, what do you want to say 3, 4 months? [indiscernible]. It varies a little bit, but for talking terms, I think, 3 or 4 months. Also you can bind in your volumes to products that don't use as much [indiscernible] at times. But I think from where it was, what would that happen about 1.5 months ago, a couple of months ago. That situation continues to get better and better. in my outlook on that right now is that it's a pricing event, and the pricing event has generally run through the industry. Operator: There are no further questions at this time. I will now turn the call back to Scott Thomson, CEO, for closing remarks. Scott Thompson: Thank you, operator. To over 20,000 associates around the world, thank you for what you do every day to make the company successful. To our retail partners, thank you for your outstanding representation of our brands. To our shareholders and lenders, thank you for your confidence in the company's leadership and its Board of Directors. This ends our call today, operator. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to UGI Corporation Q2 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Tameka Morris. Tameka Morris: Good morning, everyone. Thank you for joining our fiscal 2026 second quarter earnings call. With me today are Bob Flexon, President and CEO; and Sean O達rien, CFO. On today's call, we will review our second quarter financial results and key business highlights before concluding with a question-and-answer session. Before we begin, let me remind you that our comments today include certain forward-looking statements, which management believes to be reasonable as of today's date only. Actual results may differ significantly because of risks and uncertainties that are difficult to predict. Please read our earnings release and our annual report for an extensive list of factors that could affect results. We assume no duty to update or revise forward-looking statements to reflect events or circumstances that are different from expectations. We will also describe our business using certain non-GAAP financial measures. Reconciliations of these measures to the comparable GAAP measures are available within our presentation. And with that, I'll turn the call over to Bob. Robert Flexon: Thanks, Tameka, and good morning. Fiscal 2026 is shaping up to be a year of meaningful progress against the strategic priorities we laid out at the start of the year. Our natural gas businesses continue to anchor the portfolio, supported by strong customer demand and operational execution. We continue to have a robust pipeline of data center opportunities, much like the announcement of our partnership with Prime Data Centers. UGI International continues to demonstrate the strength of its business, generating strong free cash flow and effectively managing margins through a dynamic operating environment. Of note, we do not anticipate any full year impact to margins or supply availability issues from the ongoing conflict in the Middle East due to the nature of our sales contracts and our risk management hedging program. The operational transformation at AmeriGas is delivering substantial measurable results and on target to set the business up for a successful heating season at the start of fiscal year 2027. Our balance sheet ended the quarter with consolidated leverage below the targeted range of at or below 3.75x. Sean will cover in more detail the leverage milestones we expect to achieve this fiscal year. Our year-to-date reportable segment's EBIT is up $17 million over prior year, largely from higher gas base rates at our utilities and effective margin management at UGI International, which offset the impact of warmer weather in our global LPG service territories. At our utilities, we deployed approximately $280 million of capital year-to-date, advancing our commitment to pipeline safety, reliability and modernization while adding more than 6,000 new heating customers across our service territories. Through our weather normalization riders in Pennsylvania and West Virginia, customers were able to save $26 million on heating bills this past winter. At AmeriGas, we are excited that in select cities, our barbecue cylinders are now available online through Amazon. We are rolling this out in a phased approach across the markets where we currently operate AmeriGas' cylinder home delivery service called Cynch, leveraging our established direct-to-consumer delivery infrastructure. Turning to the next slide. I want to spend a few minutes on several strategic actions that together reflect the deliberate execution of our long-term value creation strategy, sharpening our focus on natural gas and deploying capital into the most attractive growth opportunities we see in our service territories. First, subsequent to the quarter, we entered into a definitive agreement to sell our electric division at UGI Utilities. The transaction valued at approximately $470 million with further potential earn-outs prior to working capital adjustments is expected to close in the first quarter of calendar 2027, subject to customary closing conditions and applicable regulatory approvals. The strategic rationale here is clear. The transaction sharpens UGI's focus in our area of greatest competitive advantage and the after-tax proceeds will be used to reduce UGI debt and for general corporate purposes, further strengthening the balance sheet and providing greater financial flexibility for natural gas capital investment. We're excited to announce the strategic partnership between UGI Energy Services and Prime Data Centers to develop major natural gas supply infrastructure in Pennsylvania's Northern tier. Under a purchase and sale agreement, UGI Energy Services will sell Prime property to build a proposed on-site gas fuel electric generation facility. UGI will retain the storage capacity and oil and gas rights associated with the property and is expected to supply the data center with reliable, large-scale gas supply. Prime's natural gas demand is expected to exceed 100,000 dekatherms per day within 3 to 5 years, a scale that underscores the importance of the project for the region's energy infrastructure. This partnership is a powerful example of how UGI's integrated natural gas platform is uniquely positioned to support the next wave of energy demand. The northern tier of Pennsylvania offers direct access to locally produced natural gas and multiple redundant interstate pipeline pathways, a combination of supply, security and infrastructure depth. And importantly, Prime is one of many opportunities we are actively pursuing. Our team is in active conversations with numerous parties across the data center and large load industrial space with over 75 nondisclosure agreements directly related to potential future projects signed to date. While we don't expect that every one of those will translate into contracted opportunity, the breadth of inbound interest continues to be a strong signal of the demand environment in our service territories and UGI's position to be a strategic partner for large-scale natural gas infrastructure. Lastly, during the quarter, we ran a successful oversubscribed open season for the projected Auburn pipeline expansion, which is pending FERC approval. The level of customer demand validates our expansion strategy. Taken together, these announcements provide additional avenues to creating long-term value, sharpening focus, strengthening the balance sheet and deploying capital where the demand exists. Now let me spend a few minutes on UGI International because this segment really embodies what disciplined execution looks like over the long term. When you look at the financial and operational profile of this business, there are several metrics worth highlighting. First, the return on capital employed of approximately 15% indicates that we're earning attractive returns on the capital invested in this business, reflecting the quality of our market positions, a thoughtful approach to capital allocation and an operating model that has been refined over many years to drive efficiency at every level. We've also continued to expand operating margin, drive cost productivity and improve on already strong safety and customer metrics, areas where this team has long set a high bar and continues to raise it. Free cash flow generation is equally important. And over the past 3 years, UGI International has generated more than $800 million in free cash flow. Free cash flow that has been used to fund dividends to shareholders, invest in growth initiatives in our natural gas line of business and maintain a strong balance sheet with net leverage consistently below 2x. This reflects disciplined CapEx, working capital rigor and the structural cost improvements this team has driven consistently over time. Together, these metrics describe a business that is efficient, generates strong returns on the capital it deploys and built to perform through changing economic cycles. Turning to Slide 7. The operational transformation is fully underway at AmeriGas and making a significant difference. We continue to advance many active improvement work streams across 6 focus areas with measurable improvements compared to fiscal 2024. Over the past 2 years, we have reduced the recordable incident and lost time injury rates by roughly 50%. In operations, the percentage of 0 fill stops and out-of-gas events are down considerably while we've become more efficient in the number of miles driven to serve customers. And when I think of customer satisfaction, our customer service call volumes are down 32%, while our Net Promoter Score is up 67%, significant progress when compared to fiscal year '24. A major milestone on our turnaround for AmeriGas is the full reshoring of our call center to the U.S. at the end of the second quarter. We now have over 250 agents dedicated to serving customers and regional teams that are closer to our customers and can better understand and respond to our customers' needs. This was a multi-quarter effort, and we executed on schedule, on budget and well ahead of the upcoming heating season. Our route optimization program is fully implemented and the productivity benefits are showing up in miles driven and on-time delivery metrics. Although we've seen strong improvements, our established PMO team remains focused on efforts to improve our cylinder exchange business, customer segmentation, pricing and billing, service operations improvement, supply chain optimization and inventory modernization. Taken together, the operational transformation at AmeriGas is delivering tangible results with volumes stabilized and a 9% improvement in EBIT over the 2-year period. And with that, I'll hand the call over to Sean to walk through our financial results for the quarter and year-to-date in more detail. Sean O’Brien: Thanks, Bob, and good morning. For the fiscal 2026 second quarter, UGI delivered total reported segment EBIT of $688 million in comparison to $692 million in the prior year period. This performance was largely driven by higher base rates at our Pennsylvania gas utility and effective margin management across our global LPG businesses in a quarter that was warmer than the prior year across their respective service territories. I want to highlight the strong operational execution by our natural gas teams who faced periods of colder weather in their service territories and delivered safe, reliable service for our customers. Turning to EPS. Adjusted diluted EPS was $2.09 compared to $2.21 in the prior year period. As we previously anticipated, the year-over-year decline in adjusted EPS was driven primarily by the absence of investment tax credits realized last year and higher interest expense. Turning to the drivers of each segment's results. First, the utilities delivered EBIT of $250 million, up $9 million over the prior year. Total margin increased $23 million, primarily due to the effect of higher gas base rates that went into effect in Pennsylvania at the end of October 2025. As designed, our weather normalization adjustment mechanism mitigated approximately $19 million of the weather impact this quarter, providing bill stability for our customers. Operating and administrative expenses increased $8 million, reflecting higher personnel costs and uncollectible account expenses. Depreciation and amortization rose $4 million on our continued distribution system capital investment. At Midstream & Marketing, EBIT was $150 million for the quarter in comparison to $154 million in the prior year. While heating degree days were 3% colder than the prior year, this winter, we saw longer durations of cold weather where the team was focused on reliably serving its peaking customers who pay a fixed demand charge regardless of usage, driving greater earnings stability in this business. Next, operating and administrative expenses were higher year-over-year, primarily due to new assets placed in service in the prior year. In the global LPG businesses, starting with UGI International, EBIT was $132 million in comparison to $143 million in the prior year. Retail volumes were 8% lower, largely due to divestitures of the LPG businesses in Italy and Austria and the impact of warmer weather. Total margin was down $4 million as the lower retail volumes were substantially offset by the translation effects of stronger foreign currencies, which contributed approximately $30 million. Operating and administrative expenses were comparable with the prior year period as the impact of the aforementioned divestitures as well as lower distribution expenses were largely offset by the translation effects of the stronger foreign currencies of approximately $15 million. Other income declined $11 million, and this included approximately $8 million of lower realized gains on foreign currency exchange contracts. Lastly, while we are closely monitoring the current geopolitical situation involving Iran, the structure of our LPG contracts with customers, combined with proactive actions taken by our team, gives us confidence that we do not anticipate any impact to margin or supply availability constraints. Importantly, the underlying business continues to perform well from a margin management and cash generation standpoint. Moving to AmeriGas. EBIT was $156 million, up $2 million versus the prior year. Retail gallons decreased 5%, primarily due to temperatures in the West that were warmer than prior year period as well as continuing customer attrition. For the quarter, while weather in the Eastern region of the U.S. was comparable on a year-over-year basis, temperatures in the West were 12% warmer than the prior year period, impacting total volumes sold. On aggregate, on a weather-adjusted basis and excluding the effect of the Hawaii divestiture, retail gallons were comparable to the prior year period. Total margin increased $2 million as higher average LPG unit margins and increased fee income were largely offset by the lower retail gallons. OpEx increased $2 million from the continued investment in customer-facing initiatives, which resulted in higher compensation and advertising expenses. Turning to our year-to-date results. Adjusted diluted EPS for the first half of fiscal 2026 was $3.35 in comparison to $3.58 in the prior year period. UGI delivered core EBIT growth, largely driven by higher gas base rates at our utilities, which more than offset the impact of warmer weather in our global LPG service territories and the previously announced LPG divestitures. This EBIT growth was offset by higher income tax expense, reflecting the absence of investment tax credits realized last year and higher interest expense. As we turn to the full year outlook, we are revising our fiscal 2026 adjusted diluted EPS guidance range to $2.75 to $2.90. This primarily reflects lower expected earnings contributions from our Midstream & Marketing segment, where there are delays in planned growth investments and lower production volume in the Appalachian region. Also, to a lesser extent, the pace at which operational improvements at AmeriGas are translating into earnings is slower than originally anticipated. The fundamentals of these businesses remain intact. And as Bob discussed earlier, the recent announcements and progress on the operational transformation underscore our confidence in the long-term growth trajectory of this business. Moving to the balance sheet update. We continue to make strong progress against our balance sheet objectives. Available liquidity at the end of the quarter was approximately $2.1 billion, an increase of approximately $200 million over the prior year quarter. Net leverage at UGI Corporation was 3.7x at the end of the quarter, which was the lowest in 5 years and below our targeted level of at or below 3.75x. At AmeriGas, we closed the quarter with net leverage of 4.7x, representing a meaningful decrease compared to recent years and the lowest in 5 years. On the credit front, we are pleased that [ Fitch ] revised the AmeriGas outlook from negative to stable during the quarter, further validating the operational and financial improvements that are underway, and this builds on the Moody's outlook that was revised to positive last quarter. Turning to the next slide. I want to walk through a key strategic action that we are taking to optimize the capital structure across our global LPG platform. We are executing a onetime rebalancing across UGI International and AmeriGas designed to optimize the consolidated cost of capital, improve credit profiles and further strengthen the balance sheet. Specifically, UGI International, which ended the quarter at 1.2x net leverage and with approximately $900 million in liquidity, will pay a special onetime dividend of $300 million to UGI Corporation using available liquidity. Those funds will be immediately contributed to AmeriGas as a capital contribution, which AmeriGas will use to retire outstanding indebtedness, including approximately $150 million of intercompany loans from UGI International. This rebalancing accomplishes 3 things: First, it leverages the interest rate arbitrage between UGI International and AmeriGas to materially reduce our consolidated borrowing costs. Second, it significantly accelerates deleveraging at AmeriGas, which is consistent with our objective of reducing the company's net leverage to sub-4x while enhancing free cash flow and consolidated credit profile. Our expectation is that AmeriGas will end fiscal 2026 with leverage below 4.0x. Third, it unlocks investment capacity for growth opportunities within our natural gas businesses while maintaining a conservative credit profile. Taken together, the strategic actions we recently announced reflect a deliberate disciplined approach to capital allocation that strengthens the foundation of the company and supports our long-term EPS compound annual growth rate target of 5% to 7% between fiscal year '24 and fiscal year '29. Now let me turn the call over to Bob for his closing remarks. Robert Flexon: Thanks, Sean. Before we open the line for questions, I want to leave you with several key takeaways. First, our year-to-date results reflect the continued execution of our strategic priorities with reportable segment EBIT ahead of the prior year. Our natural gas businesses are performing well, supported by robust customer demand and our weather normalization mechanisms are working as designed to provide bill stability for our customers. Second, the operational transformation at AmeriGas is delivering measurable, sustainable results in safety, in operations and in customer satisfaction. The onshoring of our call center, the implementation of route optimization and the launch of our cylinder sales on Amazon, all position the business for the upcoming heating season and for future earnings growth. Third, we are well positioned for attractive natural gas growth opportunities and the Prime Data Centers partnership, combined with the planned expansion of the Auburn pipeline supports the long-term outlook for our midstream business. In addition, the strategic actions we have announced, the agreement to sell our electric division and the global LPG capital structure rebalancing sharpen our focus on natural gas, strengthen our balance sheet and increase our financial flexibility to invest where the demand is greatest. While we have revised our fiscal 2026 guidance to reflect the timing of certain growth initiatives, the long-term trajectory of this business is, in my view, stronger than it has ever been. We are optimally situated to serve the growing demand for safe, reliable and affordable energy solutions and the foundation we are building positions UGI to deliver sustainable returns for our shareholders over the long term. And with that, I'll turn the call over to the operator for questions. Operator: [Operator Instructions] Our first call comes from -- question comes from Julien Dumoulin-Smith of Jefferies. Paul Zimbardo: It's actually Paul Zimbardo on for Julien. It's good musical chairs during earnings. The first question I had was just on the decision to kind of put equity into AmeriGas from International. I fully understand the cost of capital benefits, but I thought the message was more that AmeriGas needs to stand on its own 2 feet without support from corporate. So just curious what changed in the plans? Or was this always the plan? And just any details on the thought process there would be helpful. Robert Flexon: Paul, I'll go first and then let Sean tap in because I certainly have the viewpoint AmeriGas stands on its own. I think what's different in this situation, AmeriGas is in a position now where they can stand on their own. This is about optimizing cost of capital. And rather than paying interest rates, AmeriGas will be paying a dividend up to the parent starting next fiscal year. So rather than seeing that money go out as interest expense, we see that money flowing to the parent company as more valuable. This is not a situation where AmeriGas could not refinance its upcoming debt maturities. This is more a decision of Sean and team finding creative ways to lower that cost of capital to allow additional funds to flow to the parent. I mean, Sean, you can comment. Sean O’Brien: Yes. I think, Paul, what -- I just stick to the facts. let's stick to the facts. AmeriGas, this is very -- I was here when the previous -- the aforementioned infusion happened. That was from Holdco to AmeriGas. AmeriGas was in a much different position. So let me hit some of the facts. We set the best debt-to-EBITDA that AmeriGas has seen in over 5 years in this quarter at 4.7x. So massive progress. AmeriGas was sitting on well over $100 million of cash. The business is generating a lot of cash. So we're sitting on a lot of cash. And then one other fact, we will -- and you can see it in the slide, we're going to pay down back to International, the $150 million of intercompany debt in this transaction. So much, much different place. You've got volumes at AmeriGas, much more stable. You've got earnings stable, different position. Now let me get to the economics, why the team and myself really wanted to put this on the table. Bob alluded to it. This improves the cost of capital for the company. This benefits the company as a whole in terms of interest expense, in terms of cash flow in a meaningful way, and we'll get a full year of that starting in '27, but we'll get some benefit of that this year. The last thing I'll tell you is we know we have a maturity coming due. AmeriGas has a maturity coming due, and we want to put our best foot forward, not only arbitrage the cost -- the lower cost debt at international, but do the best we can to make sure that as we head out into the markets to take care of this AmeriGas maturity that we put our best foot forward. And I don't know if you saw it this morning, but Fitch upgraded AmeriGas from B1 positive from B positive to BB- stable. That's a big move. That puts us on par with the best propane companies in terms of the balance sheet that are out there and actually, in some cases, stronger than many of our peers. So there's a lot to this deal. I think it's all good. And we kept it between the LPG family, between international and between AmeriGas. So I'm very proud, and I think it really is going to be beneficial to the company. Paul Zimbardo: Facts. That is useful information. And I did not see that Fitch update. So thank you for that. One other one, if I can, just to shift gears. I want to see if you have any thoughts on the Pennsylvania Governor's letter related to utility affordability. Do you think this impacts the current rate case or anything in front of you? Robert Flexon: Well, we don't think it impacts the current rate case. It's going through its normal process and procedures. It's on schedule. We've had some of the intervenor commentary. It goes for into the next stage in June. So we don't see anything. But certainly, we want to be constructive with the governor. We want to be constructive for the state. We want Pennsylvania to continue to be one of the best states to invest in, and we're going to do everything we can to work and drive on affordability and support the governor and the governor's goals for the state. So I mean that's how I see it playing out. I mean we're going to do our part. Operator: Our next question comes from the line of Gabriel Moreen of Mizuho. Gabriel Moreen: Maybe I can just follow up on Paul's question on sort of the AmeriGas International capital transactions here. Sean, can you maybe just talk about how -- what else you need to do to address that upcoming maturity and maybe how you plan to address it? Is it just straight up debt issuance at this point? And then also, I think you had mentioned a comment on this allowing you to maybe invest a bit more on midstream. So I'm curious or in the natural gas businesses. So I'm curious about that. And last but not least, Bob, strategically, I'm curious with, I guess, AmeriGas cap structure kind of rightsized after this, do you think there are larger strategic implications as far as you evaluating AmeriGas' place within the UGI family of companies? Sean O’Brien: Okay. So I think I can go first, Gabe. I think a couple -- one thing I want to highlight, and I should have highlighted it on Paul's question, the absolute debt at AmeriGas Gabe, and you were kind of alluding to this, has moved from $2.8 billion to [ sub-$1.3 billion ] in this period. That's amazing. And it's in the slide, Gabe, but in terms of the overall leverage, we're going to be sub-4 after this transaction. That is -- that will be industry-leading leverage. In terms of the -- we know we have a maturity going current in the next month or so. This does a really good job of preparing us for that. But our goals in dealing with that maturity and any future maturity is to rightsize the cost of capital at AmeriGas. We believe this transaction does that and also continue to delever. So we've been very open. I can't speak about timing on when we go after the maturities, but I can tell you that our goal is to as quickly as we can deal with the current maturity and also go after the '28, which had a 9 handle and continue to set AmeriGas up, again, with leverage sub-4 with absolute debt lower than [ 1.3 ] when it was just at [ 2.8 ] and really set it up well as it goes to deal with future maturities to be an industry-leading balance sheet as we go out into these markets. So this helps us accelerate all those things I just mentioned to you. Robert Flexon: And Paul, sorry, Gabe, in addition to what Sean is speaking about with the great financial profile improvement of the balance sheet, we've done a lot of work over this past year to drive operating improvements, as you saw on one of the slides showing a lot of the more complex projects that we have underway and the significant improvement. We now feel with the call centers being back in the U.S. that we can be much more aggressive now in seeking new business. And by the time we start the winter for 2027, which really begins, call it, in November of this year, we expect to have a substantially better business than what we had when I joined the company November 1, 2024. So let's get through the upcoming winter season. I expect significantly improved execution. This year was better than last year, and next year is going to be better than this year, and we have all the operating metrics to back that up. Once we get through the winter of next year and kind of prove where we are, I think we will look at what are the longer-term strategic options for the company on how we are configured and the like. But right now, our focus is to make sure that in addition to this financial improvement, we have a strong operating base to show growth in AmeriGas. And then we'll get through the winter and we'll see what's next. Sean O’Brien: And Gabe, I want to -- I missed -- you asked about the midstream -- what it does for Midstream. In general, and it's not just the AmeriGas delevering, we talk about the transaction on the electric utility. Obviously, the portfolio optimization we've done in international, the sale of Hawaii. What we're alluding to there is we're setting the company up. All of that, as you know, our priority has been to improve the balance sheet, improve the financial standing. All of that -- those transactions have gone to debt reduction. So we're very focused on increasing the -- what I'll call the dry powder of the company. Corp, by the way, set a 5-year record as well at 3.7x this quarter. We set a goal to be sub [ 3.75 ], and we're at 3.7x this quarter. So it's really setting the company up well for midstream opportunities. We know that, obviously, the LDC side of the equation, we've seen opportunities. That's what we're alluding to there, really getting the balance sheet, delevering, getting AmeriGas' cost of capital down. So the company is well positioned if those opportunities come. Robert Flexon: And Gabe, I want to maybe stretch your question a little bit further when you talk about how do we position AmeriGas and maybe talk in general about portfolio management for the entire corporation. And as you can see, we've done a lot on recasting what our international business looks like. We are now in markets where we are the top 3, if not primarily top 1 in markets and really where we have a good competitive advantage. The electric utility sale that's underway, we've been able to execute that at a very strong multiple off a rate base of somewhere between $220 million and $230 million rate base and bringing in $470 million approximately of sale proceeds with the potential for some higher earn-outs on that as well. And then we can look at the overall configuration once we get through the winter. So portfolio management of the entire complex of the company will always be under review, looking what's going to create the most value and the most focus for our shareholders. Gabriel Moreen: Great. Maybe if I can kind of stay on midstream a little bit. I think you alluded to delay in some midstream investments as one of the factors behind the guidance revised. Can you maybe speak to that a little bit more, whether that was organic, inorganic? What are the factors there? Will they resolve? And then also just talking about the Auburn expansion, can you maybe talk about the capital and timing on that project potentially? Sean O’Brien: Yes, I can take the first part, Gabe, for sure. Since I've been here, it's been -- we've had consistent opportunities to do inorganic growth at the midstream business. A lot of that's just through buying out through JVs, looking at PE firms that are ready to exit the assets and so forth. And we've had that pretty consistently. So it would not be uncommon for us to assume those types of things as we move forward. I think what happened this year, if you want to be specific to that, we anticipated those inorganic opportunities around those similar to what we've seen in the past. And then the data center evolution hit. So you can think, Gabe, that the valuation on a lot of those inorganic opportunities were massively reassessed by their owners with potential growth in power, potential growth in gas needs in the region. So the region. So it's just a case where the company is being very disciplined. I mean, as we look at those transactions, they have to be at the right return levels for us. So I do think those transactions will continue to be there for the midstream business. But the ones that we were counting on, and we had specific ones we were looking at this year. But again, the valuations got a little bit beyond where we felt comfortable. So I think that could just be a timing. We do anticipate seeing those opportunities in the future. Robert Flexon: Yes. And the other part of your question, Gabe, around Auburn, the investment will be somewhere between $25 million, $30 million of capital investment. And through the open season that we just went through, the interest in subscribing to the Auburn pipeline was significantly higher than what we had in our economics. So it's a very strong return project for us. So we look forward to bringing that one online. Gabriel Moreen: Great. And then if I could just squeeze one more in on the data center announcement. Can you just talk about sort of next steps there as far as kind of when you'll figure out whether that's sort of a go on the gas supply. And then I'm also curious whether there's capital kind of being infused into this project? Or are you actually getting capital out because of the sale of the property here to the data center developer? Robert Flexon: Well, overall, there will be a net capital input, but certainly, there's the sale of the land, which provides the capital return to us at the beginning. And then there will be investment on our side to be able to deliver gas to the data center when developed, working with Prime and working with John, who -- John and I worked together at [ NRG ] for a number of years, they're good power developers. And so we look to be there to supply the gas to the demand that, that data center will create. So I think you'll see the benefits of that later in the decade in terms of the development, the investment and the bringing online. Operator: This now concludes the question-and-answer session. I would now like to turn it back to Bob Flexon for closing remarks. Robert Flexon: Yes. Thanks, Stephanie, and thank you for your interest, everyone, for participating today and listening in. Just to summarize, I think we've really been focusing on our operational performance. I think one of the things that we're most proud about is the dramatic increase in safety. AmeriGas has had its best safety performance in the history of us owning AmeriGas, which is #1 on our list to make sure everybody is safe. And we're seeing that across all of the business units. So safety is really paramount, and we're seeing just tremendous progress on doing our business in a very safe way and keeping not only us safe, but our customers and communities safe as well. Our performance over winter was good on all accounts. And we're looking at with customer service back in the U.S. for AmeriGas, we're looking for significantly improved customer service, making the business feel local again. We've executed on strategic transactions, the sale of the electric utility at a very strong multiple for us. We're now a retailer on Amazon for the AmeriGas business, which is exciting. We'll see how that translates into sales, but we're really optimistic on that. Obviously, the deal with Prime Data on bringing in a data center and being able to serve that as well. And finally, as Sean spoke about a lot, strengthening the balance sheet. So the combination of operational improvement and having a much stronger financial base opens up opportunities for us. And so we look forward to executing on all of that. So with that, I will conclude the call. And again, thanks, everybody, for participating. Operator: And thank you for your participation. This does conclude the program. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2026 Datadog Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Yuka Broderick, Senior Vice President of Investor Relations. Please go ahead. Yuka Broderick: Thank you, Lisa. Good morning, and thank you all for joining us to review Datadog's first quarter 2026 financial results, which we announced in our press release issued this morning. Joining me on the call today are Olivier Pomel, Datadog's Co-Founder and CEO; and David Obstler, Datadog's CFO. During this call, we will make forward-looking statements, including statements related to our future financial performance, our outlook for the second quarter and the fiscal year 2026 and related notes and assumptions, our product capabilities and our ability to capitalize on market opportunities. The words anticipate, believe, continue, estimate, expect, intend, will and similar expressions are intended to identify forward-looking statements and similar indications of future expectations. These statements reflect our views today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our Form 10-K for the year ended December 31, 2025. Additional information will be made available in our upcoming Form 10-Q for the fiscal quarter ending March 31, 2026, and other filings with the SEC. This information is also available on the Investor Relations section of our website, along with a replay of this call. We will discuss non-GAAP financial measures, which are reconciled to their most directly comparable GAAP financial measures in the tables in our earnings release, which is available at investors.data.hq.com. With that, I'd like to turn the call over to Olivier. Olivier Pomel: Thanks, Yuka and thank you all for joining us to go over a very strong start to 2026. Let me begin with this quarter's business drivers. I'm very pleased to say that our teams executed very well and delivered revenue growth of 32% year-over-year, accelerating from 29% last quarter and 25% in the year ago quarter. We showed broad-based acceleration of revenue growth across cohorts, including both our AI and non-AI customers. Our AI native customers cohort continue to grow and diversify rapidly both in the number of customers we serve and the scale of those customers. In this quarter, including new land deals with 2 of the world's biggest AI research teams, helping them improve and optimize their training workflows. I'll talk more about that in a bit. Even more impressive was the growth in our non-AI customers. non-AI customer revenue growth accelerated again this quarter to mid-20% year-over-year up from 23% last quarter and 19% in the year ago quarter. We think this is a sign of strong continued cloud migration, greater adoption of our products, and customers have all kinds accelerating their use of AI. Finally, churn has remained low, with gross revenue retention stable in the mid- to high 90s, highlighting the mission-critical nature of our platform for our customers. Regarding our Q1 financial performance and key metrics. Revenue was $9.1 billion, an increase of 32% year-over-year and above the high end of our guidance range. We ended Q1 with about 33,200 customers from about $3,500 a year ago. We also ended with about 4,550 customers with an ARR of $100,000 or more, up from about $3,770 a year ago. These customers generated about 90% of our ARR. And we generated free cash flow of $289 million with a free cash flow margin of 29%. Turning to product adoption. Our platform strategy continues to resonate in the market. For example, 56% of our customers now use for or more products, up from 51% a year ago. 35% of our customers used 6 or more products, up from 28% a year ago, and 20% of our customers use 8 or more products, up from 13% a year ago. So we are learning more customers and delivering value across more products. And our business continues to grow. Our total ARR now exceeds $4 billion, and our quarterly revenue exceeded $1 billion for the first time. This is a big achievement for all of us at Datadog and is a product of years of investment in building, innovating for our customers. But we are still just getting started. Of our 26 products, 5 are over $100 million in ARR and another 3 are between $50 million and $100 million ARR. We're working hard to build and deliver further growth in those products. And this leaves 18 other products, which are earlier in their life cycles. We believe each has a potential to grow to more than $100 million over time. Moving on to R&D. Our engineers enabled with the latest AI coding tools are building rapidly to help our customers confidently and securely deploy their applications. So let me speak to a few of our product launches this quarter. Let's start with AI. As a reminder, we're talking about our AI efforts in 2 buckets: AI for Datadog and Datadog for AI. So first, AI for Datadog. These are AI products and capabilities that make the Datadog platform better and more useful for our customers. In March, we launched our MCP server for general availability. With MCP Server, developers access live production data to debug their applications directly in their AI coding agent or IDE. We delivered this AI security agent, which autonomously triages Datadog Cloud SIEM signals, conduct in-depth investigations of potential threats, and delivers actionable recommendations. We've seen Bits AI security agent reduce investigations that could take hours to as little as 30 seconds. We also shipped Bit Assistant now in Preview, which helps customers search and act across Datadog using natural language [indiscernible] . Moving on to Datadog for AI. This includes Datadog capabilities that deliver end-to-end Observability and security across the AI stack. We launched GPU monitoring, enabling teams to understand GPU fleet utilization, workload efficiency, thermal and power behavior and interconnect performance. This drives higher GPU ROI and operational reliability. Our customers continue to move forward with their AI activities, and we can see that in their usage of the data platform. We now have over 6,500 customers sending data for 1 or more of AI integrations. Though this is only 20% of total customers, they represent about 80% of our ARR. And our customers usage of AI within that platform continues to grow rapidly. SRE agent investigations have more than doubled from December to March. The number of spans sent to our LLM Obeservability product nearly tripled quarter-over-quarter. The number of Datadog MCP server to calls, quadrupled quarter-over-quarter and the number of beef assistant messages increased by a factor of 1 in that period. While we are aggressively building weed, we also continue to expand the Datadog platform to deliver against our customers' increasingly complex needs to speak to a few of these efforts. Last month, we launched experiments for general availability. Experiments work hand-in-hand with our feature flagging product and combine best-in-class statistical methods with real time obeservability guardrail among alternatives so companies can test for impact, choose among alterbatives quickly and ship with confidence. In addition, our customers now benefit from APM recommendations by analyzing telemetry data from application performance monitoring, reader monitoring, profiler and database monitoring recommendations, APM automatically identified performance and reliability issues and most importantly, explain H2. And we announced our plans to launch our next data center in the U.K. We see a large opportunity to serve our British customers as cloud adoption accelerates in regulated industries. Last but not least, we are pleased to have received federal high certification from the U.S. federal government. With this certification, we can now move forward with federal agency customers that require FedRAMP High to handle sensitive workloads. Meanwhile, we continue to expand our product offerings, go-to-market teams and channel partnerships for public sector customers, both in the U.S. and internationally. So our teams were hard at work again. and we're looking forward to sharing many new products and future announcements at our DASH conference on June 9 and 10 in New York City. Now let's move on to sales and marketing and highlight some of the deals we closed this quarter. First, we landed 2 large deals, a 7 figure and an 8-figure annualized deals with the AI research divisions at 2 of the world's largest technology companies. These organizations are building and training the most advanced AI models in the world. It is critical for them to reduce engineering friction and increase selling velocity. But fragmented internal and protocol that it's harder to identify and solve issues and reduce engineering and research productivity. By using Datadog, both companies are accelerating their past of innovation on their hyperscale AI training workload. And this includes optimizing their workflows using GPU monitoring on large power GPU grades. Next, we signed a 7-figure annualized expansion for an 8-figure annualized deal with a leading online recruiting platform. This customer is centralizing on Datadog to reduce complexity, drive developer velocity and improve efficiency. With this expansion, they will replace a stand-alone tool with Datadog LLM Observability to correlate LLM signals with APM and user experience data. This customer will grow to 16 Datadog products, including Datadog and CP server. Next, we signed a 7-figure annualized expansion for an 8-figure annualized deal with a Fortune 500 bank. With this expansion, this customer will migrate the remaining log data into Datadog, fully replacing their legacy log vendor. Most notably, our Flex logs give them granular control over costs while meeting strict compliance requirements. This customer uses 10 Datadog products, including Bits AI [indiscernible] to accelerate incident response with AI. Next, we signed a 7-figure analyzed expansion with a leading global hedge fund. This customer operates thousands of on-prem host and network devices. At that scale, their open source monitoring stack has become operationally and sustainable impacting portfolio managers and investment analysts. With this expansion, they will replace their entire on-prem Obeservability layer with Datadog infrastructure monitoring and network device monitoring, and will have unified visibility across their cloud and on-prem environment. This customer will expand to 11 Datadog products. Next, we landed a 6-figure annualized deal with a Fortune 500 insurance company. This company's fragmented Obeservability stack led to long outages with incident supported first by their customers instead of their tooling. By using Datadog and consolidating 3 legacy APM tools, they expect to move from reactive responses to proactive incident detection. They will adopt 10 Datadog products to start, including all 3 pillars in LLM adorability. Next, we signed a 7-year annualized expansion with one of the world's largest travel groups in APAC. This customer was using Datadog on one business unit, but in 2 others, they were juggling multiple tools and lacked actionable insights. By consolidating 6 legacy open source and cloud monitoring tools, the customers save money and improve platform resiliency and performance. This multiyear commitment positions Datadog's strategic observative provider. And finally, we landed a 6-figure annualized deal with a leading Latin American fintech company. This customer serves tens of millions users across critical financial flows. Their rapid growth outpaced their fragmented front-end monitoring setup and outages exposed them to financial, operational and reputational risks. By adopting our digital experience monitoring suite including RUM, Synthetics and product analytics, they now have full visibility of our user activity with the cost control, they also previously act. This customer will start with 5 Datadog products. And that's it for our wins. Congratulations again to our entire go-to-market organization for upgrade Q1. Before I turn it over to David for a financial review, I want to say a few words on our longer-term outlook. We are pleased with the way we started 2026 as we support our customers inflection in AI usage and application development and as they lean into our AI innovations, including Bits AI SRE Agent, Bits AI Security analyst Bits Assistant, Datadog IT server, GPU monitoring and many more. There is no change to our overall view that digital transformation and cloud migration are long-term secular growth drivers for our business. But we now have an additional secular growth driver with AI as we help our customers deliver more value with this transformative new technology. Now more than ever, we feel ideally positioned to help customers of every size and every industry as well as all types of users, whether humans or AI agents so they can transform, innovate and drive value through AI and cloud adoption. And with that, I will turn it over to our CFO, David. David Obstler: Thanks, Olivier. This was a very strong quarter for Datadog. Our Q1 revenue was $1.01 billion, up 32% year-over-year. Our 6% quarter-over-quarter revenue growth is the highest for Q1 and since 2022. And our $53 million quarter-over-quarter revenue added is the highest ever for Q1. That included the strongest quarter of sequential usage growth from existing customers since the first quarter of 2022. We also delivered an all-time record for sequential ARR added to the quarter. ARR growth accelerated in each month of Q1, and we see a continuation of these healthy growth trends in April. We also achieved strong new logo bookings. New logo annualized bookings set a new all-time record by a significant margin and more than doubled versus a year ago quarter. These included wins in observability and included some of our newer products like security, data observability and Flex logs. And our new logo average land size also set a record and more than doubled year-over-year as we continue to land larger deals. Revenue growth accelerated with our broad base of customers, excluding the AI natives to mid-20s percent year-over-year, up from 23% last quarter and 19% in the year ago quarter. We saw robust growth across our customer base with broad-based strength across customer size, spending bands and industries. Meanwhile, our AI native customer growth continues to significantly outpace the rest of the business. This group continues to diversify and grow including 22 customers spending more than $1 million annually, and five, spending more than $10 million annually. This group includes the leading companies in foundational models, cogen tools and vertical-specific AI solutions. Next, regarding our retention metrics. Our trailing 12-month net revenue retention percentage was in the low 120%, up from about 120 last quarter and our trailing 12-month gross retention percentage remains in the mid- to high 90s. Now moving on to our financial results. Billings were $1.03 billion, up 37% year-over-year and remaining performance obligations, or RPO, was $3.48 billion, up 51% year-over-year, with current RPO growing in the mid-40s percent year-over-year. RPO duration increased year-over-year as the mix of multiyear deals increased in Q1. As a reminder, we continue to believe revenue is a better indicator of our business trends than billings and RPO given their variability. Now let's review some of the key income statement results. Unless otherwise noted, all metrics are non-GAAP, we have provided a reconciliation of GAAP to non-GAAP financials in our earnings release. First, Q1 gross profit was $807 million, with a gross margin of 80.2%. This compares to a gross margin of 81.4% last quarter and 80.3% in the year ago quarter. As we've discussed in the past, our gross margin varies from quarter-to-quarter with investments into innovations for our customers, offset by efficiency efforts. Our Q1 OpEx grew 31% year-over-year versus 29% last quarter and 29% in the year ago quarter. As a reminder, we continue to grow our investments to pursue our long-term growth opportunities, and this OpEx growth is an indication of our execution of our hiring plans. Q1 operating income was $223 million or a 22% operating margin compared to 24% last quarter, and 22% in the year ago quarter. Turning to the balance sheet and cash flow statements. We ended the quarter with $4.8 billion in cash, cash equivalents and marketable securities. Our cash flow from operations was $335 million in the quarter. After taking into consideration capital expenditures and capitalized software, free cash flow was $289 million and free cash flow margin was 29%. And now for our outlook for the second quarter and for the fiscal year 2026. First, our guidance philosophy overall remains unchanged. As a reminder, we base our guidance on trends observed in recent months, and apply conservatism on these growth trends. In addition, as with last quarter, we are applying a higher degree of conservatism to our largest customer. So for the second quarter, we expect revenues to be in the range of $1.07 billion to $1.08 billion, which represents a 29% to 31% year-over-year growth. This guidance implies sequential revenue growth of $64 million to $74 million or 6% to 7%, due to the strong growth of revenue in Q1 and into April. Non-GAAP operating income is expected to be in the range of $225 million to $235 million, which implies an operating margin of 21% to 22%. As a reminder, in Q2, we will be holding our DASH user conference which we estimate to cost about $15 million in which we have reflected in our operating income guidance. Non-GAAP net income per share is expected to be $0.57 to $0.59 per share based on approximately 369 million weighted average diluted shares outstanding. And for fiscal 2026, we expect revenues to be in the range of $4.3 billion to $4.34 billion, which represents 25% to 27% year-over-year growth. Non-GAAP operating income is expected to be in the range of $940 million to $980 million, which implies an operating margin of 22% to 23%. And non-GAAP net income per share is expected to be in the range of $2.36 to $2.44 -- $2.36 to $2.44 per share based on approximately 372 million weighted average diluted shares outstanding. Finally, some additional notes on the guidance. We expect net interest and other income for fiscal 2026 to be approximately $170 million. We expect cash taxes for 2026 to be approximately $30 million to $40 million. We continue to apply a 21% non-GAAP tax rate for 2026 and going forward. And we expect capital expenditures and capitalized software together to be 4% to 5% of revenue in fiscal 2026. To summarize, we are very pleased with our execution in Q1. We are well positioned to help our existing and prospective customers with their cloud migration, digital transformation, and AI adoption journeys. And I want to thank Datadog's worldwide for their efforts. With that, we'll open the call for questions. Operator, let's begin the Q&A. Thanks. Operator: [Operator Instructions] Our first question today is coming from the line of Mark Murphy of JPMorgan. Mark Murphy: Congratulations on an amazing performance. Olivier, is there any way to conceptualize the growth in the sheer raw volume of, code is being produced in the world today due to adoption of code generators such as Quad code and Codex and cursor, because they seem to be developing the capability to take on full projects and some of the charts are showing these capabilities are just exponentially exploding upward in a straight line. I'm wondering how much of that code is going into production and therefore, driving activity for Datadog. Olivier Pomel: Well, we definitely think and see that the there's many more applications being created. There's going to be way more complexity in production. We see some of that happening already today. Some of those new applications are getting into production, they're finding users. We see some signs of that at every layer of our platform. We quoted a few stats on the increasing data volumes. We see AI products that's definitely a reflection of that. So we see an inflection point there in consumption from customers. We see a move to production that is very real, and we see that across both AI native and non-AI companies. Mark Murphy: Okay. And as just a quick related follow-up. If we click down one layer, and I'm wondering how you might view the increasing heterogeneity of the environment at the silicon level, because the -- when you look across the Amazon with Trinium and Graviton and Google with TVs, Microsoft has launched the myosilicon. It looks like that is starting to explode. In our understanding is that trying to monitor the mixed environment is a lot more difficult than if you just have a uniform fleet of Intel and AMD chips, and we keep hearing all the traditional monitoring tools, they really fail on the custom silicon and Datadog handles it well. The -- and then all this new telemetry, including high-bandwidth memory and that type of thing. Can you speak to whether that trend is giving you some tailwinds? Olivier Pomel: Yes. I mean, look, broader market that's interesting here is if it's training, training used to be something only 2 or 3 companies were doing or maybe 4, 5 at a large scale. And it looks like training actually might democratize quite a bit more, and many companies will train models on a regular basis. So it becomes more of a viable category for service providers -- selling provider like us basically. I think the heterogeneity of the silicon is definitely a trend that plays in our favor there. The more heterogeneous, the more you need someone else to make sense of everything for you and title together and also title with the non-GPU aspects and the rest of the infrastructure, and the application, and the users, and the developers like basically everything we do for. There's only -- when you think of who is actually -- who actually has heterogeneous environment today, that is still a very small number of companies, Google barely just started selling their TPUs to the outside. So I think it's still a small number of companies that are there, but we see a growing opportunity there. Interestingly, last year, when we reported earnings, we said we're mostly interested in inference workloads and training is not a real market for us yet. Now we actually see training becoming a market. We started lending customers that are actually hyperscalers that have a whole host of homegrown technologies and that are using us specifically in their super intelligence labs to help monitor their workloads, accelerate the training runs, monitor the GPUs also. So we see that as a point of validation that there's going to be a fit for us Mark Murphy: That's amazing to think there's a whole need to mention, if you can move from inferencing into the training side. And I caught the reference in the prepared remarks of how you landed a couple of those very large labs. So congrats on everything. Operator: And our next question will be coming from the line of Sanjit Singh of Morgan Stanley. Sanjit Singh: I want to spin off with David on this guide to start the year is probably the best we've seen in several years, David, and laid out the underlying assumptions quite well. Just wanted to do a sanity check just on the sort of overall backdrop macro backup, we do have some geopolitical tensions and those types of things when we think about. Your Mid-East Base business and any impact from like in your e-commerce or retail business, where there may be some consumer discretionary impacts. I just want to get like how you're thinking about those parts of the business. And then I had a follow-up for Oli. David Obstler: Yes. We had a very strong quarter across the board. We have a multi-industry multi-geography type of quarter, and SMB was very strong. And that -- the source of our guidance and our raises are at the core, that type of performance. We haven't seen particular effect in the consumer businesses or e-commerce businesses yet. We basically have a continuation of trends in those businesses, travels and things like that. that are very similar to the other industry. So we haven't seen it yet. We obviously watch it and look at analytics, but we haven't seen it. In terms of our overall guidance, the trends that we have in organic, we discount across the board, and I think we mentioned our particular treatment of our largest customer. Sanjit Singh: That's very clear. And then Olivier, for you. I think we -- when we talk to investors about the debate in this category longer term is just what does this what does the category look like when agents are doing the triaging investigating versus human engineers and human SREs. And so -- what is your sort of vision of that -- how that evolves for Datadog, both from a product standpoint and an experience standpoint from a UI perspective, but also like is there going to be immune modalities in terms of pricing when agents are consuming the Datadog platform to a higher degree than engineers do today? Olivier Pomel: Yes. Look, I think one thing I'd say is it's hard to tell where we're going to be in 4 or 5 years. If you had told me 2 years ago that most engineers would go back to coating in the console. I wouldn't have believed you. And yet, that's one of the winning modalities today. Look, as far as we're concerned, we don't care whether most of the usage is humans, most of usages agents. Our business model lends itself to do pretty well like we are usage-based it doesn't really matter where the is coming from that perspective. The way we see trends up right now is, we see both stratospheric increase of agent usage. So we have a ton of usage on our MCP server. We see customers spending to automate a lot with their own agency using our agent combination of those. But we also see an increase of usage of the web interface is by humans. So right now, the 2 work hand-in-hand and we keep developing and pushing on those fronts. Operator: Next question is coming from the line of Raimo Lenschow of Barclays. Raimo Lenschow: One for Olivier, one for David. Olivier, if I listen to you in your prepared remarks, there's a lot of like consolidation that people try to do open source tooling and then realize they kind of needed to come to you and come back. On the other hand, in the industry, we still have a lot of like noise around that level. How do you see it in real life. To me, it seems a little bit like optionability is just very hot. And then there's different categories where you use certain items -- certain vendors and some open source, can you speak what you see in real life there? Olivier Pomel: I mean, in real life, most companies have open source in some capacity somewhere. When it comes to having a platform that unifies everything telecare everything does more of the problem solving for you, that's typically what customers use us. And the motion we see pretty much everywhere, these customers have 4 or 6, 7, 15, and 25 different things, and different pockets in the organization, and different business units, and it's a huge mass. And they come to us, they can unify all that. They get better results because all of the data is in one place, the workflows can be automated from time to end. [indiscernible] can get end-to-end visibility, you don't have blind spots. And also they save money because they don't have all these pockets in efficiency everywhere. So it's a win for everyone. The thing that's also interesting in particular this quarter is that we also landed some large parts of hyperscalers. And hyperscalers typically have a culture of building everything themselves. And the certainly have the balance sheet and the human capital to support some of that build-out. Like if there was ever a set of companies for whom it makes sense to do it themselves, and we do those companies. And yet, we see that they have the same issue. When it comes to going as fast as they can, being as efficient as they can with their resources, like they come to us to replace some of the things that we're using before. David Obstler: Two things, 2 metrics to look at that to make the points Oli, you're making, if you look at our platform adoption, and you see both the growth of the different categories and the extension of the categories out to lots of products that shows you that the consolidation on the Datadog platform has continued, and there's a very strong trend. And part of that is the movement solutions, as Oli mentioned, that are both open source, but also the competitive point solutions onto the platform. That's been a significant driver of the revenue growth for some time now, and that continued certainly in Q1. Raimo Lenschow: Okay. Perfect. And then, David, for you, last year, and we did a lot of investments around go-to-market, especially on sales capacity. If you think about now the non-AI category doing better, how much of that is like people like the cloud migrations again. So that's like an industry trend and how much of that is like you guys actually being broader positioned? David Obstler: Yes. It's a number of things, including one is the expansion of the platform, the consolidation, the successful ramping of sales capacity, which is while not jeopardizing productivity, which has resulted in ARR increasing and a good environment as well. And I think that's what we said last time, there are a number of factors. And certainly, what we're proving out here is the investments we've made in go-to-market and are continuing are paying off and we're the right decision. Oli, anything to add? Olivier Pomel: Yes. And look, we, at the end of the day, there's clearly some market tailwinds with the adoption of AI and -- but also, we are outperforming all of our competitors at scale, and we're taking share, and that relates to the structural platform to where we expand with new products, the way these products are maturing and starting to win in their respective categories in the way we've successfully grown the SES capacity. David Obstler: Certainly, the AI involvement trend has helped we're trying to do a separate that. So -- and AI investment is probably helping the overall as well. But when you really take that out, you still -- you see a very pronounced acceleration here. And that has to do with the factors that I mentioned and Oli talked about. Operator: Our next question is coming from the line of Gabriela Borges of Goldman Sachs. Gabriela Borges: Olivier, I find your comments on train versus inference, so interesting. Maybe just crystallize for us. Why do you think the training opportunity it's happening now or inflecting now? And then I had a[indiscernible] for yourself for David, -- how do we think about the attach rate on trading versus inference of observability? Is there a way to benchmark observability spend as a percentage of inference spend, does that number change given the new data that you're seeing on the training site as well. Olivier Pomel: So on the training side, training was very new a couple of years ago. It was something that was only done by very few companies, and it was in a way, very artisanal, like it was not a production workload. It was something that researchers were building, and that was very one-off and ongoing in ways. And now it's turning into production. It's turning into something that many more companies are doing. It's scaling by orders of magnitude, and it's becoming something that has to be on all the time, reliable and every minute you lose is or whether every fellow you have in your training around is a week you give away to the competition. And so as a result, it becomes way more interesting as the market for a company like us. And we see some signs of that. Again, we didn't have a lot of it. We didn't see a lot of it last year. Now all of a sudden, we're starting to see quite a bit of activity there and demand, then we have success landing with large customers with those products. David Obstler: Yes. I think going back to the metrics that Oli talked about in terms of attach, we said that 6,500 customers are using our integrations and 20% of the customers and 80% of the ARR. So there is attach. I think it's earlier days for the training. That looks like it will be a contributor. But I think we -- that's early, and I would sort of look at the larger attachment at this point as the evidence of inference, but also some training. Operator: Our next question is coming from the line of Karl Keirstead UBS. Karl Keirstead: Okay. Great. I wanted to start to Olivier and David, and you congratulating all of you and the team on reaching that $1 billion milestone well done. David, maybe the question is for you and to hone in specifically on the 2Q guide. Even if you put up a modest beat on that guide, it's going to be by order of magnitude, the largest sequential dollar at I think, in the company's history. And I just wanted to unpack what's giving you that confidence? And in particular, is there anything interesting to call out, David, in terms of the ramp of a couple of the larger research labs, one of which renewed with you guys in the fourth quarter, another one just landed. I presume they're ramping nicely in 2Q, but would love any color. David Obstler: Yes. Let me unpack this in a couple of ways. As you know, we're recurring revenue model. So the biggest indication of in the near term of the next quarter is the ARR growth in the previous quarter. And when we said we had a record. So essentially, at the bedrock of this is sort of the run forward of ARR that we've already signed. The ARR add was very broad-based and was not very concentrated. So whereas we pointed out some very significant adds I would say that the first quarter and that ARR add was really diversified and from lots of different places. So the -- and I think Oli will come in here, but the confidence that we have is you're right, we essentially take what we already have. We discount the growth trends that we've seen. And that produces what you exactly said, which is whatever your assumptions are on beat a very impressive sequential really due to what happened in Q1 and the rate of business accumulation by Datadog. Oli, do you want to add? Olivier Pomel: Yes. I mean if you want to dive on what David just said, ads we are broad-based. I mean look, when you look at why do we have a great Q1, we also let get customers in Q4. We had talked about it a quarter ago. But even if you take out the customer we land in Q4 that added the most revenue in Q1, we still had a record quarter in terms of ARR add. So this is really broad-based. And we landed a few more customers in Q1 that don't contribute any revenue yet, but we expect to be big contributors in the future. So when you put all that together, we feel very confident about Q2, hence the numbers you've seen. Operator: And our next question will be coming from the line of Fatima Boolani of Citi. Fatima Boolani: Oli, I wanted to double back on a question that was asked earlier with respect to telemetry volumes essentially going parabolic, and you are accessing a brand-new demand in the foray into training and monitoring and observing training model environment inside some of the world's largest frontier labs. And so I wanted to ask you about the structural changes to the capital intensity of the business. I mean your CapEx levels are still pretty respectable and pretty muted. So I wanted to get a better understanding of what sort of extrinsic or intrinsic engineering efforts you're undertaking to keep a very efficient CapEx envelope in spite of the fact that it seems like that would increase because of the torrent of telemetry we're seeing on the platform. And then as a related matter, we've seen a rise of sovereign data and data residency requirements kind of ramp as AI models move into the territory of national security and things like that. So just wondering if you can kind of talk to some of the engineering horsepower internally that you're leveraging to be able to keep a really tight command on capital intensity, and frankly, your gross margins? Olivier Pomel: Yes, I mean, look, sort of the investments we're making right now, you we run most of our workloads on cloud, meaning you'll see all of that in OpEx, nothing CapEx. So we have low CapEx. If it changes, we'll tell you, like if for some reason, we decide to make different kinds of investments and some of it more front some it more CapEx, we'll tell you, but that's not the case today. We are definitely ramping up our investments in particular in R&D and in the scale of the models, we train ourselves and things like that. But right now, there's nothing that you can actually see in the numbers that move any needle but if that changes, also we'll tell you. We don't expect any change to [indiscernible] So that's on the CapEx side. We are very different businesses in that way from the AI lab. On the subject of data residency and sovereignty of AI and things like that. We definitely see more push for that more demand for that in the customer base. And for us, that means investment into areas One is in deploying into more geographies and having more certifications to sell to the public sector and to the highest level of the public sector. So we mentioned today data center in the U.K., for example, and our [indiscernible] certification, we're not stopping there in terms of the certification we're going after with a sell government. So that's an area of investment. Another area of investment is our bring you on cloud products and where we can actually run on our customers' infrastructure. And so we announced that, we read some products there, and we have heavy investment in that area. So we can support customers that want to operate in a slightly separate way from the rest of our customer base. Operator: And our next question is coming from the line of Curt of Evercore. Unknown Analyst: Congrats nice start. Oli, I was wondering if you could just give some thoughts on the idea of sort of security for agents. I think one of the big issues in terms of getting agents into production is sort of the security aspect of that? And how do you see Datadog plugging into that opportunity? And then just a quick one for David. Congrats on the FedRAMP reaching a milestone. Are your partner relationships in place to take advantage of this? I realize it will be a long-term opportunity, but just kind of curious how well established you are down there to start seeing some maybe bookings in that area. Olivier Pomel: Yes. So on the security of agents, we interfere with that in 2 ways. So first, there's the agents will build ourselves because we are building a lot of automation inside of our products for our customers and agents that automatically identify but also resolve issues without you having to do anything. And there -- a lot of it has to do with understanding what permissions to apply, what kind of guardrails to apply, what kind of put to interface with the humans and how to make that the trust worthy and visible in the right way. And so that's pretty much the whole product surfaces to during data. The automation itself actually can work already. So you should expect to hear more about that at our conference. This is definitely one big area of investment for us. On the security aspects of our agents. Look, we believe in securities that you need to integrate, you can't just have point solutions that look at one sliver of the whole security posture. You need to look at everything all together. And that's one of the areas that we are also covering with our security efforts. So that's part of the whole platform action. David Obstler: On the FedRAMP, we've been working on both the different certifications, but at the same time, we've been investing in the go-to-market function, both in terms of reps and channel partners for a number of years. Certainly, there's more investment to be done, but we invested ahead of the certifications because in this sector, building pipeline, et cetera, it takes time. And certainly, the channel partner relationships are a very important part of this. and we have been investing, but also have more investment to do. Operator: Our next question is coming from the line of Patrick Colville of Scotiabank. Patrick Edwin Colville: I guess, Olivier and David, you guys are very deliberate in your messaging on the prepared remarks. And I guess, I want to double check the kind of wording of one of the comments. I think, David, you had a higher degree of conservatism to the largest customer. I guess, did I hear that right? And then does the higher degree of conservatism reference versus the other customer cohorts? Or does it reference versus your guidance philosophy in prior quarters vis-a-vis this customer? David Obstler: It's both. It's the same guidance we used, and we're being very explicit. For all the business, except for the largest customers, we've always taken the drivers and discounting them. We -- for this particular customer, we took a higher degree of conservatism than the other part of the customer base. and discounted it more. And we were, I think, in the remarks and you interpret it correct, very explicit, and you're correct. Olivier Pomel: I wouldn't give that much weight to do a very specific word. We deliberate but not all that deliberate. Similarly, both David and I have a rusty voice today, but there's a man. David Obstler: But I will remind everybody we did not change. So if the question also, I think you asked, is did we change? Or is this a different methodology of both the overall and the large customer, then the guidance the last quarter or the previous. The answer is no. It's the same methodology and that we've had. So no change, but that's has been what we've always been doing. Patrick Edwin Colville: Okay. And Olivier, can I ask about your comments about the hyperscalers because I thought that was particularly interesting. And the reason why is, I don't think you called them out previously before, and they are so prevalent in the modern tech stack. To your point, they could do this themselves. So I guess how are they using Datadog? Is it for more kind of traditional obeservability? Or is it for these newer areas like GPU monitoring that Datadog has performed so well of late. Olivier Pomel: Well, it's both actually. When you look in general at large AI customers, they use Datadog at the way other companies are largely with a fairly broad set of our products to cover the full circuit of liability. What's new is we now have a product for GPU monitor. It's a very new product. And we see the hyperscaters that are coming to us for training workloads in particular being very interested in that. So again, it's too early in the product life cycle and the customer life cycle for these specific customers to go definitive victory there, but we see that as a very encouraging sign of where the market might go in the future. Because we think this might be a bellwether of what the next 10, 100, 500 companies that are going to start training workloads are going to want to do. We have some signs that go beyond the customers we signed this quarter that point that way too. Operator: And our next question is coming from the line of Peter Weed of Bernstein Research. Peter Weed: And I'll echo others on the momentum. Great to see One of, I think, the great successes you talked about was landing a couple of the AI labs for the hyperscalers. Although I think on the other hand, you've talked in the past around hyperscalers are typically building observability in-house. What is it really about the AI workloads that are making it more attractive for them to use Datadog? And what might give you confidence that Datadog might be more persistent with them in these types of workloads and that's kind of a signal for maybe how other customers might use Datadog around AI differentiated from things that they might be able to bring in house to other places? Olivier Pomel: The December all of our customers, it's high stakes, high complexity and not core. They have to be most differentiated. They're going afford to be late, and it's a really hard job to do to do that. So what we built our whole business on, and it's also very true for -- at the highest level for the largest companies. Peter Weed: Yes. No, I was just going to say it. But I guess, the point is you've emphasized that those largest customers have been able to go in-house on some other things. Is there something unique about AI that prevents them from doing that here? Olivier Pomel: Well, I think the urgency of the their development efforts focuses the mines. That's what I would put it. I would say, it forces you to figure out what's core and what's not core and what's the -- who you want to get to the -- what you need to do to maximize your chances of success. And again, it's is the same thinking all of our customers have all the time. I think the equation for hyperscalers has often been say different because they have, let's call it, unlimited access to staffing. And they sort of set their own time horizons for the developments they wanted to make. I think the situation is a little bit different with the ARRs maybe. Operator: The line of Gregg Moskowitz of Mizuho. Gregg Moskowitz: And I'll add my congratulations on a terrific quarter. Just one for me. Oli, I know it's not GA yet, but curious if you have any early feedback on your new cloud prem offering. As you noted earlier, providing the ability of potato to run on customer infrastructure. Could this be another yet another, I should say, incremental growth opportunity for Datadog? What are your expectations for this? Olivier Pomel: Well, definitely, we think -- I think there was a question earlier on data residency and leaving customers environment, we definitely see a great opportunity there. It is chance that a good portion of the market means this way in the future. Today, it's not the largest part of the market, but we definitely see a potential for that. So we're investing heavily in that sort of our product. We're trying to see some interesting customer traction there. So we think this can be another growth lever differently. We also think that it can help us getting into some extremely large-scale workload where customers would not have considered SaaS offering before, where we can be in the running. So that's very exciting. All right. And I think that was our last question. So I want to thank you all for attending the call. And I remind you that we have our conference in just a bit more than a month, and I hope to see many of you there. So thank you all. Operator: This concludes today's program. You may all disconnect.
Operator: Hello, and welcome to the AAON,Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Joseph Mondillo, Director of Investor Relations. You may begin. Joseph Mondillo: Good morning, everyone. The press release announcing our first quarter 2026 financial results was issued earlier this morning and can be found on our corporate website, aaon.com. Call today is accompanied by a presentation that you can also find on our website as well as on the listen-only webcast. We begin our customary forward-looking statement policy during the call, any statement presented dealing with information that is not historical is considered forward-looking and made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995, the Securities Act of 1933 and in the Securities and Exchange Act of 1934, each as amended. As such, it is subject to the occurrence of many events outside of AM's control that could cause AAON's results to differ materially from those anticipated. You are all aware of the inherent difficulties, risks and uncertainties in making predictive statements. Our press release and Form 10-Q that we filed this morning detail some of the important risk factors that may cause our actual results to differ from those in our predictions. Please note that we do not have a duty to update our forward-looking statements. Our press release and portions of today's call use non-GAAP financial measures as defined in Regulation G. You can find the related reconciliations to GAAP measures in our press release and presentation. Joining me on today's call is Matthew Tobolski , President and CEO; Andy Cheung, our new Chief Financial Officer, who joined the company in April and Rebecca Thompson, our Chief Accounting Officer. Matt will start with some opening remarks, Andy will follow with a walk-through of the quarterly results and Matt will finish up with our updated outlook for 2026. With that, I will turn the call over to Matt. Matthew Tobolski: Thanks, Joe, and good morning. Q1 was a strong start to the year and an important execution quarter for AAON. As the organizational leadership and capacity investments that we have been deliberately building began to show up more clearly in our results. In addition to delivering record sales and 37% earnings growth, we recorded a book-to-bill well above 1, resulting in backlog of $2.1 billion, more than double from a year ago and marking the sixth consecutive quarter at record levels. . Both brands continue to demonstrate the strength of their value propositions through highly engineered, configurable and custom solutions, consistent with the strategy we have executed against over multiple years. This led to strong customer demand and translated into solid growth in share gains during the quarter. Demand remained exceptionally strong in basics, supported by the strength of the data center market and our differentiated solutions that deliver improved performance, greater efficiency and ease of maintenance. Basics branded sales grew 72% year-over-year, even against a lofty comparison and sales in the prior year period nearly quintupled. Increased production from our expanded facilities in Longview and Memphis supported a higher throughput while we also continue to increase output from our Redmond side. Operationally, we executed well for our customers with all 3 facilities delivering record basics branded sales during the quarter. This performance reflects not just strong demand but improving execution driven by deeper leadership benches, clear accountability and more disciplined operating processes as capacity scales with a more mature operating structure. In addition to higher throughput, we delivered another quarter of strong bookings. Basics posted a book-to-bill ratio over 2, driving a record backlog of basics branded orders, up 160% from a year ago and 24% sequentially. Against the data center thermal management market growing at approximately 30%, our revenue and order growth raised supported continued market share gains at Basics. The AAON brand also performed well. gaining share even as market conditions remain soft and our extended lead times persistent. A key positive during the quarter was a notable improvement in production rates which drove AAON branded sales growth of 42% year-over-year and 11% sequentially. These improvements contributed to shorter lead times and a sequential reduction in backlog, though further progress is necessary. With volumes within the unitary HVAC market growing just modestly year-over-year, these first quarter results suggest meaningful share gains. Bookings of AAON branded equipment increased approximately 9% year-over-year and were up about 15% on a trailing 12-month basis. In the quarter, growth was driven by strength in our traditional transactional business while national account bookings were comparable with the prior year period. The improvement in transactional business reflects an acceleration in demand, which is encouraging considering this business was soft for much of last year. orders of alpha-class equipment, which comprise our AAON branded fully electric heat pump configurations also contributed to growth, increasing 56% during the quarter. The same strength that AAON branded bookings limited the sequential decline in AAON branded backlog even with meaningful improvements in production. An branded backlog declined 3% sequentially and remained up 26% from a year ago. As a result, we remain focused on further ramping production to work down backlog in normalized lead times. In the midst of such strong growth, we have been intentionally investing in people, processes and tools to build a top-performing operating organization, one capable of sustaining higher growth rates while expanding margins over time. These investments are now moving from build phase to execution phase. Last quarter, we discussed the investments we've been making in supply chain management and lean manufacturing. We continue to leverage these investments and expect to see accelerating benefits as the year progresses. Margin expansion remains central to our long-term value creation model. In the near term, we are intentionally prioritizing growth, customer delivery and system maturity over near-term margin maximization. That decision is reflected in the temporary use of outsourcing and ramp-related inefficiencies as we scale capacity. These are conscious, disciplined trade-offs made from a position of strength and visibility not demand-driven pressure or structural resets. We view them as economically positive decisions that accelerate market share gains and long-term returns on invested capital. Importantly, these decisions do not come at the expense of [indiscernible] growth. Longer term, as capacity builds out and internal capabilities mature, reliance on these temporary measures will decline driving margin improvement through better fixed cost absorption and productivity. As a result, we now expect higher growth for the year, albeit with more modest margins near term while continuing to see directional margin improvement as the year progresses. Before handing it off, I want to welcome Andy Chang, our new Chief Financial Officer. Andy brings a strong financial background and a proven track record of leadership across strategy, financial planning and analysis and capital management. His experience and disciplined approach will be instrumental as we continue to scale the business, enhance execution and drive long-term value creation. Andy's insights and partnership will further strengthen our leadership team and support our focus on growth, margin improvement and operational excellence. I'd also like to thank Rebecca Thompson for his steadfast service as CFO. I look forward to her continued contributions and a return to the Chief Accounting Officer role. And with that, I will now turn it over to Andy, who will walk through the quarterly financials in more detail. Chung Cheung: Good morning, everyone. I'll start this morning by first sharing how excited I am to join AAON and to have the opportunity to partner closely with Matt and the leadership team. I've held financial leadership roles across multiple industries in my nearly 30 years tenure, including an extensive amount of time in the industrial HVAC space with a consistent focus on driving operational efficiency. I'm pleased to bring that experience to AAON, and look forward to helping drive the next stage of profitable growth and value creation. The company's strong market position and the high growth opportunity is what initially attracted me to the role. And as I have become more familiar with the business over the past few weeks, I've been even more impressed by the strength of the underlying fundamentals and the sizable opportunity that lies ahead. I look forward to working with the team to support profitable execution, enhance returns and deliver long-term value for our shareholders. With that, let's turn to the first quarter financial results. First quarter net sales increased 54% year-over-year to a record $496.9 million. Growth was driven by strong performance across both basic and AAON brands. supported by elevated backlog levels and recent capacity investments that enabled higher production rates during the period. Basic branded sales increased 72% year-over-year. reflecting continued strong demand for data center cooling solutions and capacity gains from higher utilization of our facilities in Memphis, Longview and Redmond. AAON branded sales grew 42% in the first quarter, driven by improved production throughput as we work to reduce lead times at both our totall and long field facilities. Gross margin was 25.1% in the first quarter, down 170 basis points from 26.8% in the prior year period. Gross margin was impacted by an increased amount of outsourced components to drive growth and share gains and absorb fixed costs at the new Memphis facility as well as tariff-related and general inflation pressures of which are temporary, despite these lead-term margin impacts, earnings growth remained strong, reflecting our exceptional growth trajectory.As internal capacity scales, utilization and productivity increase, reducing reliance on outsourced components and resulting in better fixed cost absorption. Additionally, we have taken margin actions through pricing and mix and those actions are embedded in the backlog. SG&A expenses as a percentage of sales declined 220 basis points to 13.7%. Up 32% to $67.9 million. This reflects strong operating leverage and disciplined cost management, and demonstrates how our organizational investments are scaling as revenue grows. Driven by the strong top line performance, non-GAAP adjusted EBITDA increased 44% and from the prior year period to $78 million. Non-GAAP adjusted EBITDA margin was 15.7% compared to 17.6% a year ago. Diluted earnings per share in the first quarter of 2026 were $0.48, representing an increase of 37% from the first quarter of 2025. Turning now to the segment financials. Beginning with AAON Oklahoma. For the first quarter, net sales increased 51% year-over-year to $244 million. This outsized growth was driven by a strong beginning backlog and improve production throughput, which supported by higher backlog conversion despite a challenging industry backdrop. Results also benefited from a favorable comparison to the prior year period, which have been disrupted by the industry's refrigerant transition, contributing to regain market share. AAON Oklahoma gross margin was 26.3%, an increase of 120 basis points from 25.1% in the first quarter of 2025. Overhead expenses associated with the Memphis facility impacted segment margin by $9.8 million. Excluding these costs, Oklahoma margins were 29.6%. The remaining gap to our historical highs in the upper 30s is explained by 3 items: outsourcing, tariff-related pressures and general inflation none represent a structural change to Oklahoma long-term earnings power for its role as a core margin engine for AAON. All 3 have already been addressed with actions embedded in backlog, and new pricing actions. These temporary headwinds will moderate as the year progresses. AAON coil products sales were $117.6 million in the first quarter, an increase of $23.6 million or 25% compared to the prior year period. Growth was driven by $93.2 million in base branded liquid cooling product sales which increased 40% during the quarter. This strength was partially offset by a 12% decline in AAON branded output within the segment. AAON Coil Products gross margin was 24.1% in the first quarter compared to 31.8% in the prior year period. and up 280 basis points sequentially from 21.3% in the fourth quarter. The sequential margin expansion reflected improved operating leverage from higher throughput at the Longview facility along with a favorable mix of higher-margin basic sales. Sales at the basic segment grew 104% in the first quarter to $135.4 million. The robust growth was driven by sustained demand for data center solutions and new market share capture as basics continued its trend of strong order intake and growing backlog. Increased utilization of our Memphis facility was also a significant factor, providing additional production capacity that was additive to segment results. BSIC segment gross margin was 23.9%, essentially flat from the prior year period. The stable year-over-year margin reflected strong volume growth offset by incremental resources and investments lead to support the future growth and share gains. As utilization continues to improve, we expect basic segment sales and margins to expand through the balance of the year, with the second half weighted more favorably as fixed cost absorption improves. Turning now to the balance sheet. Cash, cash equivalents and restricted cash balances totaled $1.1 million on March 31, 2026, and debt at the end of the quarter was $425.2 million. Our leverage ratio improved to 1.71x, down from 1.77x on December 31. During the first quarter, cash flow from operations was a positive $34 million, the highest level since the third quarter of 2024. This is compared favorably to a $9.2 million use of cash in the prior year period and was driven primarily by higher earnings and improved working capital efficiency. Capital expenditures totaled $52.9 million, reflecting continued investment in incremental capacity to support future growth. Looking ahead, we expect continued profitability and productivity improvements throughout 2026, which we believe will drive further cash flow improvement and strengthen the balance sheet in support of future growth. I will now hand the call back to Matt. Matthew Tobolski: We entered the second quarter the significant production momentum and a strong backlog that provides excellent visibility through the remainder of the year. Production throughput continues to ramp across all of our facilities, positioning the business to benefit from higher volumes and improved utilization. With this operational momentum and backlog strength, our focus remains squarely on execution and delivering for our customers. In the near term, we expect temporary cost pressures from outsourcing as we support strong growth and continued market share gains. However, these impacts are transitory and as internal capacity expands, these cost burdens will diminish, allowing margins to improve with demand remaining robust production continuing to scale and capacity investments coming online, we expect improving margins over the course of the year as operating leverage builds. We remain focused on scaling the business efficiently and strengthening margins over time, while delivering for our customers and driving long-term value for our shareholders. For the year, we now anticipate sales growth of 40% to 45% at a gross margin of 27% to 28%. SG&A as a percentage of sales is expected to be between 14% and 15% and depreciation and amortization expenses are expected to be in the $95 million to $100 million range. These expectations reflect our confidence in demand, improving execution and the operating leverage embedded in our cost structure. Importantly, our full year outlook reflects a net improvement in both top and bottom line, with earnings up materially despite gross margins reflecting intentional timing and ramp decisions. The additional volume we are taking on this year carry strong incremental contribution and accelerate absorption, productivity and capacity payback. This is a timing issue tied to how we're choosing to ramp and execute. Not a reset in long-term margin structure. As absorption improves, outsourcing declines and pricing flows through, margin expansion follows as these temporary factors unwind. In closing, I want to thank our employees, our customers, sales channel partners and shareholders for their continued support. We are seeing clear momentum in our operations as recent investments translate into stronger execution. Our visibility, execution priorities and operating discipline position us well to continue improving performance and delivering long-term value. And with that, I will open the call for questions.[Operator Instructions] Your first question comes from Ryan Merkel with William Blair. Ryan Merkel: Congrats on the quarter, very well done. So Matt, you're not going to be surprised about my first question, which is gross margin. There's a lot going on but I think it would be helpful if you could just talk about Oklahoma because the margins there, I think you said normalized for close to 30%, but the quarter was 26. So that 500 basis points, if I have that right, can you just unpack each of the temporary issues? And then the second part of the question is, how should we think about 2Q and why will 2Q improve sequentially? What are the drivers? Matthew Tobolski: So touching on Oklahoma margins, just to clarify, the margin as reported includes the overhead impacts of the to Memphis investments and so when we back that out, the Oklahoma margin for the quarter is sitting around 30%. And so when we think about that 30% compared to 2024 high in the higher 30s, the 3 key drivers that are embedded in there is, first off, some intentional choices to outsource to help fuel the growth. And when we think about it from a system perspective, we've got demand coming across the entire platform for internal manufacturing resources. And so as we balance exactly where all those resources are driving kind of throughput for the overall enterprise, some of that decision, especially in coil production in places like Longview, we're centered on supporting some of the liquid cooling products we have. So because we tied up some of that capacity in the Longview site for basics, we did some more outsourcing in the Oklahoma site, which shows up in the overall margin. But beyond that, there's a little bit of price cost dynamic and a little bit of dilutive nature from the tariff surcharge and actual costs incurred. But I want to touch on the fact that the price cost issues and the tariff impact were identified and actually pricing actions have been taken at the back half of last year. So embedded in backlog is actually intentional actions to increase that price already. and we will continue to monitor the input costs and really maintain discipline around pricing strategy. Ryan Merkel: Got it. Okay. That's helpful. And then 2Q, can you provide us any kind of color on where you think the margins will land? Matthew Tobolski: Yes. I mean, Q2, we're expecting sequential improvement quarter-over-quarter in the Oklahoma segment. And so that includes both with and without Memphis. The only thing I'd touch on is Oklahoma does traditionally have seasonality in Q4 and Q1. So we anticipate seeing sequential progression in the Oklahoma segment margin in Q2 and Q3 and there still is a little bit of potential pullback in Q4 with normalized seasonality. But all in all, we expect to see consistent improvement kind of during the main peak months in the summer. Ryan Merkel: Got it. Okay. And then just quickly on basics, I mean the revenues and orders were way above what I was thinking and maybe even what you were thinking, if I go back to what you told us in 4Q. So why did basics revenue in the quarter beat so much and then what is embedded in the guide for basics growth at this point? Because I think prior, you had said 25% growth. Matthew Tobolski: Yes. So, it's a good question on what changed or what allowed us to accelerate the sales and the bookings guidance. And really, what I'd say is as we look kind of within our customer base as well as new customer conversations, we continue to see incredibly strong strength in the data center market from an underlying perspective. And as we mapped out kind of our execution plan to really capitalize on the opportunity, especially with our differentiated product, we made the choice to accelerate some of the productivity or production ramp, which is part of that additional cost structure that came in on the outsourcing. But when we saw the opportunity and we really mapped out how we can take advantage of that, we made it a point to really accelerate revenue, which allowed us to then also accelerate bookings. So as that demand really started to come online and show good legs and we gain more and more confidence in our ability to drive more volume through. It allowed us to continue adding more sales or bookings as well. So that's really the big driver of really the acceleration, both on the sales and the booking side. I would just say, high level, what's embedded in the overall guide for the year is when we zoom out and we look at kind of the new 40% to 45% kind of marker from a top line revenue perspective that implies roughly $1 billion in basics revenue for the year. Ryan Merkel: That's incredible. Okay. I'll get back in line. Operator: Your next question comes from Chris Moore with CJS Securities. Christopher Moore: Nice quarter. Maybe we'll start with -- on the rooftop side. So obviously, you're ramping production there, lowering the lead times sounds like you're taking some share. Just maybe you could talk a little bit about kind of what you're thinking about from the rooftop market for the balance of '26? Matthew Tobolski: Yes. I mean the rooftop market as a whole, we talked through last year of obviously making some great strides in our national account success throughout the calendar year. But as we came into 2026, we continue to see good strength in the national account structure. But beyond that, what we saw was some really -- some solid movement in the more traditional transactional market. And so a lot of that growth in bookings that we saw in the quarter actually was driven by the more traditional market, which from our vantage point, it shows signs of recovery. We look at the age or data kind of through second quarter it shows a low single digits recovery in volumes going through, which obviously we're outperforming on. So we're taking share. We're really capitalizing on the value proposition of the overall portfolio, seeing a lot of strength in the off glass heat pumps. We're seeing good strength out of in our local markets. And so we continue to expect to see ramping production in the Oklahoma segment through Q2 and Q3. And again, a little bit of question mark in Q4 on normal seasonality, but really see good strength from our value proposition and driving good revenue and share gains through the year. Christopher Moore: Got it. In terms of the premium pricing? Is that's still holding up? Matthew Tobolski: Yes. I think one thing to point out and kind of mentioned in my response to Ryan's question, but embedded in the backlog has been intentional pricing actions that we've been taking through the back half of last year. So it's important to note, implying there obviously is we're maintaining discipline on how we price our product and maintain that premium and we continue to see strength in bookings. So with that price, we continue to see the value proposition shine through with those share gains and outperformance on the overall bookings. So, we definitely think the pricing strategy remains intact. We see the value proposition very much intact, but continued focusing on delivering innovative products to the marketplace. Christopher Moore: Got it. And maybe just one on basics. And it sounds like you're talking about $1 billion in revenue this year. Just from a capacity standpoint, kind of where you'll be at the end of '26 and kind of what's your longer-term target in terms of data center capacity.? Matthew Tobolski: Yes. I mean, we've talked in the past and again, this is sort of what's rough napkin math in the past around about $1.5 billion of capacity. But last quarter, I indicated in a lot of the conversations and really response to questions, which was we truly see a lot of upside actually beyond that. So embedded inside the initial investments that we made in both Longview and Memphis is actually more revenue potential than that original $1.5 billion. We continue to work to really quantify that. Mix is obviously a huge component of that as we continue to capitalize on the market opportunity. But we definitely see the capacity embedded in there being above $2 billion per share. Christopher Moore: Got it, i'll leave it there. Matthew Tobolski: So we've got headroom I would just touch too. I mean there's obviously sequential investments that come along with more equipment. But I'd say the big lifts have already been embedded in the investments we've been making. Operator: Your next question comes from Noah Kaye with Oppenheimer. . Noah Kaye: Matt, Yes, another really strong orders quarter for basics. Can you talk a little bit about the nature of the orders you're seeing now, how that's evolving? Some of these wins is existing customers, new customers, mix -- any color on that and how that's informing your ramp at Memphis would be helpful. Matthew Tobolski: Yes, a great question. So when we look at the overall kind of what is embedded inside not only the bookings but also I'd say the pipeline, which I think is also equally as important about longevity. There is a solid base, obviously, of existing customers. but we continue to engage with and secure orders with new customer base as well. And so we see the delivery and the execution and the value proposition of the product, helping anchor continued orders from our current customers, but also we see continued engagement and a lot more opportunity with broadening that customer base, which, as we've talked about in the past, is actually one of the key focuses that we have as a business. We love -- we love the customer base that we have. We also want to be very intentional about diversification and ensuring we spread out the overall kind of concentration risk within a broader customer base. And so we continue to focus on that. We continue to see it driving success in the overall results. And just kind of maybe moving one step further beyond just the customer base, I also want to just talk about the kind of overall product portfolio embedded in the conversation. One thing we're seeing in the midst of all this is really a broad-based demand for our entire portfolio. So if not isolated on one product or another. We're seeing good strength and consistent strength in our traditional airside products that built the base brand from the beginning days. So we see the good strength in air side. We continue to see that market actually growing in demand for us, but also continued strength in the liquid cooling products with the CDUs, both liquid air and liquid conversations. But beyond that, we're also seeing really good strength and interest in our kind of AI-centric free cooling chillers. So systems that are intentionally designed to operate at optimized levels within higher fluid camps supporting AI workloads. We continue to see increasing demand and increasing success there. So really the wins both from a sales and a bookings perspective are pretty broad-based around the customer set and the overall portfolio itself. Noah Kaye: That's helpful. And then I think you mentioned around the basic segment. There was some outsourcing also helping to accelerate sales there. Was that also coils outsourcing? Can you give us any more color on what was being outsourced? Matthew Tobolski: Yes. There's a variety of things that we look at from an operational perspective to see where the constraints are. And one thing I always say is manufacturing is a world of uncovering the constraints. No matter how much you solve one problem, you move it to the next one. And so as we look at overall constraints and really map out the sort of rocks that are in the way from accelerating revenue growth, coils obviously are a conversation that we continue to invest to expand our capacity. So it's not a long-term outsourcing strategy on coils. It's just essentially as we continue ramping internal production. We're basically using that as a little bit of a short-term kind of hedge to be able to keep driving the volumes. But same thing, as we think about a Memphis coming online, we're adding a tremendous amount of internal manufacturing capacity in the Memphis site, whether it coil production, whether it's sheet metal, whether weld and coating, all these things that are part of the puzzle. And as we push to really accelerate growth, we understand kind of the ramp rates of some of those internal investments. And we balance that with outsourcing to ensure that we can drive volumes while continuing to mature the internal operating processes. So that's where we talk about. This is a temporary conversation on outsourcing. We continue to have more and more capacity internally coming online, which is what's going to help drive margin improvement as we keep getting that capacity to mature. Noah Kaye: Okay. That's helpful. Matt. One more is just for Andy. First of all, welcome to the call. Maybe you could just talk for a minute about your priorities in the seat. It's -- it's nice to come in a quarter where an operating cash flow is inflecting. But I know with your background, you probably see some more opportunities to improve operating cash conversion. Can you talk a little bit about that and just more broadly what you're focused on here in the near term? Chung Cheung: Yes, absolutely, Laura. I'm super excited to be joining AAON here. And as you can see, we have really strong fundamentals. In the last few weeks, I really learned a lot and starting to formulate my priorities. I would say, near term, I see 3 things as really important. One definitely is the margin discipline, the ability to grow our margin during this phase of ramping rapid growth. Second, as you mentioned, we do see opportunity in cash generation, particularly on working capital management. I think there are opportunities there. And then lastly, I think just from an overall finance function standpoint, the visibility, the connection with the rest of the management team, with our operating team, I think there's a lot that we can do to enhance the capability of the overall leadership team. So yes, I'm super excited. These are 3 things. I'm definitely going to share more of my view in the next call in the next couple of months. Noah Kaye: And we look forward to that. Operator: Your next question comes from Timothy Wojs with Baird. Timothy Wojs: I guess a couple of questions for me. Just on the gross margins, Matt, how much of the kind of reduction relative to the prior guide is actually the investments you're making and any changes to kind of the Tulsa guide versus just higher mix of data center revenue now being in the sales line? Matthew Tobolski: Yes. When we look at -- first off, when we look at the sort of kind of prior guide expectation to really where we delivered in Q1, I would say the biggest driver of that sort of miss or dislocation is really driven by the intentional actions and decisions we made to accelerate volumes. And so the incremental cost that put on obviously affected multiple segments. But by and large, that decision to drive more volume and in doing so, relying on some more outsourcing activities certainly was a big driver in that. And so that plus the Oklahoma margin conversation around a little bit of that price cost that also had some near-term pressures -- but beyond that, the additional pieces that are embedded in there is, as we look at the opportunity ahead, we look at that growth rate and we map out what it's going to take. We've additionally made some more investments internally within our people and our process and some other investments to support that level of growth throughout the year. So there's a little bit of front load as well that kind of midway through the quarter, we undertook to really help fuel that growth throughout the year. So I mean, there's certainly a variety of factors in there. The data center margin is lower that we talked about than the structural AAON Oklahoma margin in the high 30s. But again, we knew that going into the quarter, and that really wasn't the prime driver of that disconnect. Timothy Wojs: Okay. Okay. That's helpful. And I guess if $1 billion or so of basic branded is kind of the target for 26 now. I think it implies that there's no real change in the AAON branded sales, I guess, is that math right? Matthew Tobolski: Yes. I mean it's -- they're in line. I mean there's a little bit of upside, but it's not markedly different on the AAON side. Timothy Wojs: Okay. Okay. And then just the last one. Usually, you see kind of a several hundred basis point step up if you just look at also margins from Q1 to Q2. just from a seasonality and a revenue perspective? And I know you're kind of kind of chewing through some backlog. So how would you kind of specifically expect the Tulsa business to perform Q1 to Q2 relative to normal seasonality? Matthew Tobolski: Yes. I mean I would say you're going to be -- we anticipate being relatively in line with that normal seasonality. And so I would say you're going to see uptick or we anticipate seeing uptick Q1 to Q2. But I would say, additionally, acceleration in that growth and margin profile really into Q3 before we expect some seasonality. So Q1 and Q2, I'd say, rough order magnitude, you're in the ballpark of what we expect. Operator: [Operator Instructions]Your next question comes from Julio Romero with Sidoti & Company. Alex Hantman: This is Justin on for Julia. Can you give us an update on Memphis revenue contribution in Q1 specifically and help us frame the trajectory from roughly $25 million to $30 million in to where you expect Memphis to be exiting 2026 on a quarterly revenue run rate basis? Matthew Tobolski: Yes. We don't have Memphis explicitly called out in terms of that breakout of revenue. But what I would say is we anticipate -- I mean we saw a good contribution step-up from Q4 to Q1. That's obviously the big driver in some of that revenue gain for the quarter. We anticipate continuing to see growth in Memphis throughout the year. So as that facility continues to mature, and really gets more and more stability in the internal manufacturing process, it allows us to continue ramping that throughout the year. So we anticipate seeing strength and growth throughout the year. Really, the focus right now in Memphis is ensuring that we mature that operation and really drive consistent performance before we push the accelerator too hard. But we do see the opportunity throughout the year to keep driving sequential growth in that side of the business. Alex Hantman: Very helpful. And then with capital expenditures being deployed towards investments in capacity, can you give us a sense of where the capacity investment is being directed and whether the $190 million full year CapEx plan is still intact or whether the demand environment is causing you to revisit that number? Matthew Tobolski: Yes, it's a great question. And so really, when we think about where that $190 million is spread out, obviously, there's a huge concentration in terms of facility perspective on Memphis and continuing to build out Memphis throughout the year. So last year, obviously, we had a huge year of investment in putting more and more equipment into that facility. But obviously, that continues in this calendar year as we continue to mature that operation and build the back of house to sustain that continued growth. So I want to just anchor there for one second and say that initial investment in Memphis does provide a tremendous amount of revenue potential. So it's not like there's an immediate massive follow-up of additional CapEx to support the continued growth. We have made a lot of investments over the last couple of years fleet-wide, whether Longview, Memphis and really Tulsa, Redmond and the Kansas City site as well. So we've been making investments over the last couple of years, which obviously show up in our financials. But those investments we've been making in the last couple of years have been very much framed around that forward-looking growth potential. So the investments we're making this year, obviously centered in Memphis, but the investments we've been making are going to support a lot of this growth. It's not triggering some massive investment that we have to make to be able to support this rate of growth in that $2 billion marker kind of from a revenue perspective. Alex Hantman: And just to add on your question, we are still seeing $119 million is our current expectation for the year. Very helpful. and congrats on a nice quarter. Thanks so much. . Operator: This concludes the question-and-answer session. I'll turn the call to Joseph for closing remarks. Joseph Mondillo: Okay. We thank everyone for joining today's call. If anyone has any questions over the coming days and weeks, please feel free to reach out to me. Have a great rest of the day, and we look forward to speaking with you in the future. Thanks. . Operator: This concludes today's conference call. Thank you for joining. You now disconnect.
Vincent Clerc: Welcome, everyone, and thank you for joining us on this earnings call today as we present our first quarter results for 2026. My name is Vincent ClercKirk. I'm the CEO of A.P. Møller - Maersk. And I would like to introduce our new CFO, Robert Erni, who is joining me here in the room for the first time. Many of you will no doubt have the opportunity to meet Robert on the upcoming roadshows and conferences. Let me start with the overall highlights for the quarter. At the macro level, we continue to see strong demand growth across all of our segments and most regions. The big exceptions was North America which has remained weak since the start of the trade tensions about a year ago. This resilient level of demand is easily observable in our own number, but it wasn't enough to stabilize the ocean freight rates. The supply overhang there has worsened as the many new vessels delivered throughout 2025 and into 2026 have outpaced this strong demand. The Middle East conflict has required also operational adjustments, but it did not have a material financial impact in this quarter. This is mainly due to the delayed recognition of revenues and costs in Ocean. I will elaborate on this shortly on the following slides. Overall, we delivered an EBITDA of $1.8 billion and an EBIT of $340 million, impacted overwhelmingly by the lowest rates in Ocean year-on-year. Lower earnings led to free cash flow of negative $874 million for the quarter. Looking ahead for the full year, notwithstanding the disruptions that the Middle East conflicts have brought, we are maintaining our guidance given what we can see right now. On the basis of container volume markets of 2% to 4%, we guide for underlying EBIT of between negative $1.5 billion and positive $1 billion and a free cash flow of negative $3 billion or better. The Middle East conflict is not expected to have a material impact at this stage through the use of both operational and commercial levers. Our maintaining the guidance and the range reflects the fluid environment that we are in, but it also speaks to the agility and resilience of our business such that we can withstand such large disruptions without materially changing our financial outlook. And that is a good segue into the next slide, where I'll add a few more words on the Middle East conflict. It is important to highlight that the outbreak of this conflict is primarily impacting Ocean. Logistics & Services and Terminal have not been and we don't expect will materially be impacted. Thanks to our strategy put in place over the last decade, we have a much more diversified and resilient revenue and cash flow streams today that will cushion the impact on our results that the ocean market is faced with. Let me start by saying that we have of over 6,000 colleagues in the affected countries, and we currently have 6 vessels stuck in the Persian Gulf comprising owned and time charter vessels with crew on board. We also have our gateway terminal at APMT Bahrain, our hub in Salalah. We have warehouses and offices and all the colleagues are safe and accounted for. Safety of our people, vessels and assets is our #1 priority. This means right now that operations also in and out of the strait of Hormuz have been suspended based on our continuous security assessment. The Gulf region before the outbreak of the conflict represented about 2% to 3% of global containerized trade, so direct volume impact is limited on the global scale. The situation in the Strait of Hormuz has also impacted the situation in the Bab al-Mandab Strait, and we have reversed and halted the gradual return to the Red Sea transit for safety reasons since the beginning of the hostilities. We have seen rate spikes since the outbreak of the conflict, which averages on spot rates up to about 40% since the end of February. It is important to note that this rate increase has been roughly in line with the cost increase we have faced. Operationally, the modularity of our Gemini network has helped us pivot with volumes back to pre-war levels and limit the disruptions to our volume delivery and service quality. We have been able to isolate part of the network impacted by the conflict and carry on with our operation while maintaining the highest reliability and in delivery. While the oil prices have surged and bunker availability has become under pressure, we have been able to maintain bunker supply through available reserves on board vessels and in storage facilities on land. We have a coverage at this time of minimum for a quarter ahead, which is in line with normal coverage. We have responded to fuel shortages in certain parts of our network, most notably in Asia by redistributing available fuel from North America and Europe to ensure that our vessels can bunker before departing again for their head ho. The cost impact of this energy shock is unprecedented, both in terms of size, the speed at which it has unfolded and the dislocations it has created in the market. For us so far, it represents approximately $0.5 billion in extra cost per month that we must find a way to pass through. If these elevated bunker prices persist, which seems likely, we would expect to deploy more slow steaming to reduce the cost impact. We remain confident that the impact of the shock can effectively be contained between a combination of commercial and operational measures. In terms of the numbers, there is limited financial impact from the conflict in the first quarter given the accounting effects of delayed recognitions of both revenue and costs. The increased costs that will flow through the P&L in quarter 2 and beyond are being recovered through higher spot rates and a successful implementation of commercial levers with our contracted customers most notably surcharges and bunker formulas. As mentioned, this is about $500 million of extra cost per month, which we are recovering in full today even in an oversupplied market. Overall, despite heavy disruptions to energy markets, Maersk is well diversified and stand well positioned to weather these challenges and take advantage of the opportunities that will undoubtedly arise. You may recall the strategic priorities we set for Ocean as well as the other segments back in February. Looking at Ocean first. On Protect, our high asset turn, we have delivered a 6 percentage point overperformance on volume growth versus fleet growth, driven by Asian exports, which is comfortably above market. This has allowed us to increase our asset turn and bring down our unit cost. This follows similar outperformance we saw in the third and fourth quarter of 2025. It is the new baseline now that we have created through Gemini and the one that we must continue to improve on going forward. We also demonstrated strong operational performance by filling our vessels to reach a utilization of 96%, reflecting discipline in fleet deployment. On grow, with an above-market growth of 9%, we delivered a strong quarter and ensure that we leverage the agility created by Gemini to maximum impact. The strong volume performance was delivered against the backdrop of continued downward pressure on rates with rates down 14% year-on-year. This came from contracts rerating at the start of 2026, driven by this industry oversupply. Finally, on the focus on profitability, we have demonstrated a sustained decrease in unit costs, notwithstanding the Middle East conflict, owing to our strong operational performance. This, I'll return shortly to on the next slide. As mentioned, commercial levers are helping us to recover the cost increase from the Middle East conflict. The benefits of Gemini are on track and will incrementally benefit the P&L until the end of quarter 2. From quarter 3, it will become part of the baseline. As mentioned, our strong operational performance is also reflected in the sustained decrease in unit costs driven by our modular network, which I'm particularly pleased with and is due to the hard work of our teams. Since Gemini's inception, we have delivered 7% year-on-year decrease in unit cost at fixed energy. What makes this particularly impressive is that we have sustained this trend in this quarter, even in the wake of the Middle East conflict and the operational disruptions it has brought. Cost leadership remains central across all of our businesses, but especially in ocean with tougher times and more disruption. We will continue to roll out initiatives such as potentially slow steaming or restarting operation through the Red Sea in this regard to ensure that we protect our profit and margins going forward. In Logistics & Services, our priorities in 2026 are twofold: accelerate the margin improvement and improve on our growth performance. So I am very focused on margin expansion and productivity as this will drive better performance this year. On the first priority, we have demonstrated clear improvements in our challenged product, especially airfreight and MinMile with higher year-on-year margins in both. These improvements have come from productivity gains as well as more effective revenue management. Looking at margins more broadly, this quarter marks the eighth consecutive quarter with year-on-year EBIT margin improvement, reflecting the operational progress we have made across the portfolio. This quarter, we improved our EBIT margin by 0.5 percentage points to 4.6%. There is, of course, more to do, and our focus for the rest of the year remains on revenue management and productivity improvements to drive performance. On the second priority of improving growth, we have delivered a revenue growth of 9% overall across the portfolio. While further proof points need to be delivered in the coming quarters to confirm this good performance, we are satisfied with the current momentum. Our job is to grow, but to do so profitably, continuing to make investments where it makes good sense, like we did in Singapore, if we turn to the next slide. Back at mid-March, I had the pleasure of attending the opening of our new modern warehouse in Singapore. World Gateway 2 is a fully automated multi-client distribution centers spanning about 100,000 square meters and strategically located close to major transport infrastructure. The facility marks a major expansion of our contract logistics and e-commerce capabilities in Asia Pacific and represents a doubling of our footprint in Singapore. It is equipped with state-of-the-art robotics and automation technologies. For customers, this will mean faster order fulfillment to end to end customers and shorter lead times as well as improved accuracy generally. The modern technology and scalability will unlock opportunities in new verticals, including luxury to complement the others where we already cover such as lifestyle, FMCG, retail, wellness and technology. We are excited about World Gateway 2 and look forward to delivering value to our contract logistics customers. In terminals, looking at our strategic priorities for the year, in relation to the first one, growth through existing and new location, we demonstrated solid growth of 4% year-on-year. What is equally exciting is that we are the growth plan that we have either announced or executed during this quarter. These investments will allow the business to diversify and increase its portfolio of gateway terminals across the globe while ensuring continued strong value generation. First, we announced the strategic expansion plan to upgrade North Sea terminal in Bremerhaven together with our partners at Eurogate. I'll elaborate on this one shortly on the next slide. We also announced the acquisition of a 13.7% minority stake in Southern Container Terminal in Jeddah, Islamic Port alongside DP World. And further, we executed the incoming transfer of our 49% minority share in the Hateco Haiphong International Container Terminal which is located in an area of crucial importance for Vietnam's growth and for the Asia and transpacific trade. Finally, we completed Phase 2 of the expansion of Lázaro Cárdenas in Mexico with high level of automation, electrification and the use of clean energy sources. We are now proceeding with Phase 3 of the expansion of that terminal. On our other priority, maintain long-term profitability, the quarter generated a very strong return on invested capital of 16%. We do expect the effect of growth investment in greenfield projects to affect the ROIC figure in the coming quarters as invested capital increases ahead of activities during the buildup phase. These are great investments, though, that will secure future growth and deliver strong returns over many decades for our shareholders. The expansion plan of the upgrade to upgrade Bremerhaven is an example of what we do best and comes straight out of our playbook of operational excellence. The EUR 1 billion planned investment together with our partners, Eurogate will significantly upgrade North Sea terminal in Bremerhaven and promise a significant return. As we have recently done in Pier 400 in Los Angeles, we will implement automation to bring down our breakeven level. The learning from Los Angeles means that we expect the implementation and outcome to be even better this time at NTB. In parallel, we will expand NTB's capacity by around 1/3 to 4 million TEUs per annum, which in turn will strengthen the location as a key terminal in the Maersk Ocean network. And I will now hand over to Robert, who will walk you through the detailed financial and segment level performance. Thank you. Robert Erni: Thank you, Vincent. I'd like to take a brief moment to introduce myself as this is my first earnings call with Maersk. My name is Robert Erni, and I started as the Group CFO of Maersk in February of this year. I have 30 years of experience in finance across the global logistics sector, of which about plus 10 years as Group CFO in previous companies. Maersk is a company I've long admired and come to know well from the customer side. I'm very pleased to be part of the team. I look forward to meeting many of you in the days and the weeks ahead. Now let me turn to the results for the quarter. The first quarter was characterized by solid operational execution across the business with strong volume growth. However, this was against a more volatile environment and materially lower earnings in Ocean, driven by deteriorating rates as a result of industry oversupply. We delivered revenue of $13 billion, which was a 2.6% decrease year-on-year. Lower rates were only partly offset by the strong volume growth. The impact from lower freight rates can be seen in our profitability, which declined despite earnings growth in Terminals and Logistics & Services. We delivered EBITDA of $1.8 billion and EBIT of $340 million. This led to a decline in return on invested capital to 3.8%. Free cash flow was negative $874 million in the quarter, reflecting the lower earnings base. Our balance sheet remains strong, and we retain significant financial flexibility. Following the distribution of dividends for the financial year '25 and continuation of the share buyback program, we ended the quarter with $18.4 billion of cash and deposits and a net cash position of $1.3 billion. Let us look at our cash flow generation in Q1. Let me comment on a few of the key developments in the bridge, starting from the left. Our net working capital increased by $913 million in the first quarter as the higher price of bunker drove an increase in the value bunker inventory, while customer receivables also increased. As a result, operating cash flow was $1 billion. Relative to EBITDA, this implies a cash conversion of 59%, down from 102% in the first quarter of last year. This is mainly due to the increase in net working capital, as already explained. Our capital lease installments increased by roughly $400 million over last year to $1.2 billion. The increase is mainly related to installments towards the renewal of the Port Elizabeth Terminal in U.S.A. extension, which was signed in Q2 '25 as well as the exercise of purchase option on some formerly chartered vessels. Gross CapEx remained sequentially stable at $1 billion, but decreased around $400 million year-on-year, reflecting a lower investment level in Ocean. As usual, the majority of gross CapEx related to Ocean investments. After these items and the $231 million proceeds from sale of aircraft, which is included in the other bucket, free cash flow was negative $874 million for the quarter. In addition, we returned $1.3 billion to shareholders through the distribution of dividends for the financial year '25 and the ongoing share buyback. Taking this together with net borrowings and other items, net cash flow for the quarter was negative $874 million. So let us have a closer look at the financial performance of our segments, starting with Ocean. I will start by reiterating the point made by Vincent earlier. The financial impact of the Middle East conflict was immaterial in the first quarter, even as supply chain disruptions led to an increase in both rates and costs towards quarter end. The impact will be more visible in our P&L in the second quarter as we consume our bunker inventory and recognize revenue from containers shipped at higher freight rates from March onwards. Ocean reported revenue of $8.2 billion, down 8.2% from last year. This is driven by the impact from much lower freight rates, partly offset by the substantial volume growth driven by strong Asian exports. The commercial mix was more or less in line with our target with 44% of volumes on longer-term rate products. Operating costs remained broadly stable despite various disruption in the external environment. With the increase in volumes, this means that unit cost at fixed energy was down by 7.1% compared to last year. Profits were slightly lower sequentially with EBITDA of $903 million and net EBIT of negative $192 million. Ocean continues to reap the benefits of the Gemini network. We maintained industry-leading reliability for our customers, and we're seeing sustainable financial benefits from better asset turns and bunker savings. These are helping to cushion the full impact of declining rates. Finally, gross CapEx was $716 million, which is in line with our CapEx guidance. In the EBITDA bridge, you can see how all of these different factors have contributed to the year-on-year development in quarter profitability. The significant rate decline was a dominant factor, driven by lower rates from the supply overhang with a large negative impact of around $1.2 billion. This was only partially offset by stronger volumes. There was a positive impact from the lower price of bunker, which decreased 16% year-on-year to $486 per fuel oil equivalent tonne. Note that this does not reflect the increase in oil price that happened throughout March. Bunker consumption was also down by 5.3%, driven by network efficiencies. Net of the volume effect, we managed to keep both container handling and network costs, excluding bunker price, largely flat year-on-year. There's also a significant revenue recognition element as rates declined sharply between Q4 '24 and Q1 '25, but were stable between Q4 '25 and this past quarter, a pure timing effect. Continuing to our Logistics and Service business. The segment continued to track positively in the first quarter. We are growing and we are growing profitably. Revenue increased by 8.7% year-on-year to $3.8 billion. Growth came from all 3 service models. Revenue was down sequentially following peak season in the later half of '25. This quarter also marks the eighth consecutive quarter of year-on-year EBIT margin improvement with the business delivering EBIT of $173 billion, implying a margin of 4.6%. This represented a 0.5 percentage point increase in EBIT margin compared to the previous year. Let me remind you that from the next quarter, we will be reporting Logistics & Services under a new structure as already advised. And therefore, only briefly on the current service models, which you will be seeing for the last time. You can see the volume growth helped to drive increased revenue from all service models. Profitability-wise, most of the increase came from fulfilled by Maersk through Middle Mile and transported by Maersk through Air. Specifically, Air saw volume increase by 20% compared to last year. We continue to prioritize investments in profitable growth. And whilst CapEx was 30% lower year-on-year, this was only as a result of the phasing of investments. Stepping back, the picture shows that broad-based top line growth is translating into better profitability, particularly in the parts of the portfolio where we have been focusing on operational improvements. Revenue was up around 9%, while EBIT was up 22%, demonstrating good operating leverage and continued improvement. As Vincent says, we are focused on margin expansion and productivity to drive performance. That is our job for the coming quarters. So I round off my financial review of the segments with our terminal business. Through a quarter of geopolitical conflict and supply chain disruptions, our terminal business again demonstrated its resilience and delivered a solid performance. Revenue increased 6.7% year-on-year to $1.3 billion, driven by higher revenue per move and volumes across most regions. The volume growth of 4.3% was largely coming from North America, which experienced growth of 11%. This was due to Gemini, which consolidated its volumes at 2 North American terminals, representing a net gain relative to the former 2M alliance. Revenue per move increased around 3%, driven by improved rates, favorable mix and ForEx, but partly offset by lower storage revenue. Cost per move similarly increased about 4%, mainly reflecting higher depreciation from recent investments, adverse ForEx and investments to extend the life of our cranes and other equipment. This was partly offset by lower SG&A and the benefit from higher volumes. EBITDA reached $488 million with a margin of 37.1%, while EBIT increased by 11% to $436 million, corresponding to a margin of 33.2%. Gross CapEx increased to $171 million, driven by growth investments, including Zwappe in Brazil and Pipavav in India. It should be noted that while return on invested capital on a 12-month basis for the segment increased to 15.7%, capital employed will increase following the recent investments while incremental earnings ramp up. Moving on to the financial guidance. Following the first quarter performance and given what we can see now, our 2026 financial guidance remains unchanged. Assuming global demand remains robust, we continue to expect global container volume growth of 2% to 4% in '26 with Maersk to grow in line with the market. On this basis, we continue to guide for an underlying EBITDA of $4.5 billion to $7 billion, underlying EBIT of negative $1.5 billion to positive $1 billion and free cash flow of negative $3 billion or better. Whilst we maintain our cash flow guidance, we are experienced in higher working capital because of higher bunker costs, which is absorbing additional cash. Our cumulative CapEx guidance also remains unchanged at $10 billion to $11 billion for '25 to '26 and likewise for '26 to '27. The guidance range continues to reflect industry overcapacity from new vessel deliveries as well as different scenarios on the timing of the reopening of the Red Sea and Strait of Hormuz and their consequent impacts. With that, we remain focused on operational execution, cost discipline, capital allocation as we navigate what is still expected to be a volatile year. On that note, we finished the first quarter financial review, and we'll now proceed to the Q&A. Operator, please go $ahead's. Operator: The first question from the phone comes from Cristian Nedelcu with UBS. Cristian Nedelcu: Two, if you allow me. The first one is on the Ocean strategy. There have been some statements from the ZIM Board members a few weeks back noting that Maersk made an offer for the acquisition of ZIM. Having this in mind, could you tell us what is your strategy in Ocean going forward? Are you looking to grow capacity? Would you consider acquiring other Ocean assets going forward? And the second one is on the Ocean EBITDA. Historically, seasonality-wise, volumes are up in Ocean in Q2 versus Q1. You earlier alluded to the fact that you're fully passing through the higher fuel costs. Is there any reason why the Q2 Ocean EBITDA should be lower than what you generated in Q1? Any other moving parts that we should keep in mind? Any color would help. Vincent Clerc: Yes. Thank you for the questions. Our strategy in Ocean is quite simple. We want to deliver the best service to our customers in terms of reliability. We want to have the lowest possible cost, and we intend to grow our volumes in line with the market. Those are the 3 tenets that we have. If we make a deviation to this, such as what we did with ZIM is if we feel that there is something which opportunistically would serve to lower our cost or we can buy assets, which opportunistically would be at a much better price than average because of the current market circumstances, then we look into it. And if suddenly the prices would have to increase to a place where that doesn't make sense and doesn't support our cost leadership, then we get out of the process. So I don't expect us to be active on the M&A front in Ocean. This is not a core tenet of our strategy. But at the same time, we stay alert to what happens. And if there are some -- a few things that opportunistically would advance some of our fleet goals and lower our breakeven cost, then we will look at it because it's aligned with our strategy. On the EBITDA for Q2, I think the only thing that would change -- the 2 small things that to look at is from a volume perspective, you mentioned -- I mean, you're right, in general, volumes are stronger. This time, Chinese New Year was kind of late in March. So the rebound may be a bit less than when Chinese New Year is strong. And then you had some of the disruptions from the Gulf where it started by -- with a few weeks of booking acceptance being actually shut down and then gradually reopened as the situation there, we found ways to bring the cargo. So from a total volume perspective, volumes today are back to their pre-war levels, but there's been a few weeks at the beginning of the conflict where they were a bit lower. From a profitability perspective, I think the real question is exactly at what week the cost start to filter through and the revenue start to filter through. What we know is that we've been able to recover these cost increases. And you can see it, 40% increase on the shipping indexes out of China. It means that we're basically on all the shipments are recovering the full cost increase, and we have similar increases that we have secured in the contracts. Now in the very weeks where this phases in, where the one phases in a bit faster. So if revenue phases in a bit faster than cost, that's very good. If it phases in a bit slower than cost, it's not as good. What is good is that this will quickly be -- it's just a little timing issue at the beginning. So I don't expect major fluctuations in Q2, but I think we -- as Robert mentioned, we have a big range in the guidance, and that is because the situation is extremely volatile and the mood swings around whether we get to a conflict resolution fast or not, they are quite significant from tweet to tweet. Operator: The next question from the phone comes from Muneeba Kayani with Bank of America. Muneeba Kayani: So just following on from the earlier question on 2Q. You've done $1.75 billion in the first quarter of EBITDA. If the second quarter is somewhat similar, we're looking at EUR 3.5 billion, maybe EUR 4 billion of EBITDA in the first half. So can you explain how you've thought about that low end of the guide and kind of what scenario would be needed to reach EUR 4.5 billion for the full year? And then secondly, Vincent, if you could talk a little bit more about what you're seeing in the demand environment. I think you've mentioned that demand has been strong and you've continued to see that. What are your customers saying? And how are you thinking about that volume range turning out for the rest of the year? Vincent Clerc: Yes. Let me start with the second, Muneeba. Basically, I would say, as we stand here today, we see no impact on demand level from the conflict in the Middle East. As I mentioned, our volumes are back to pre-war levels. So we feel pretty good that the first quarter market will be at the upper end of what we have guided with respect to market, maybe even a hair above. And that -- these strong demand levels we see continuing into April and May. So that's the first thing. So for us, I think if you think about this, the range of 2% to 4% in order to get out of that range for the market for the year based on 5 months with that strength, you would need to see a pretty sharp deceleration coming out pretty soon for it to go out of range. So from that perspective, I think there is quite a lot of resilience in the market. Now -- the cost increase is significant and how this will -- how long this will take to get down into inflation or margin absorption for the different parties involved across the energy markets. I think that is very much an open question. So we have not yet seen impact on demand from the higher energy prices. We do foresee though a softer growth in the second half year in anticipation of that. But how much -- we still think it's going to be enough that we stay in the range, but we need also to see how the conflict evolves if the war starts again or if we really move towards peace, there is a lot of different dynamics there. So that's, I think, the best color I can give on the demand level. With respect to the EBITDA level. So I think we don't guide specifically on the quarter. So I don't want to be too -- get into the math of it. But what we see is continued strong demand, which means whether we are in terminal or in logistics, we should be able to continue the normal seasonality that we have there and in ocean as well. As I mentioned, the one thing that could impact a little bit is the phasing in of the revenue upsides and the phasing in of the cost downsides as a result of the hostilities and how they exactly net out in the quarter, which is too early to comment on. But I feel very proud of the speed at which we have been able to pass these cost increases to the customers. And therefore, I don't think it's going to be a huge impact, but I have yet to see the numbers exactly on how that goes and how this is taken through revenue recognition and cost recognition and so on because as Robert mentioned, our working capital has increased as the inventory -- the cost of holding the inventory of fuel has increased significantly. So we'll see how quickly that phases through on the P&L. Muneeba Kayani: So how do you get to the low end of your guide given you've been happy with the speed so far? I think what you need to remember is there is -- we have 44% of our business that is in contract where we have secured coverage for this cost increase. And we have 56% of our business, which is on spot or monthly rate for which we have secured it through the spot market, as you can see in the freight exchanges, but where this is a weekly battle to keep it there. So I think our concern would be a softening of the demand environment, insufficient capacity management across the industry, which leads to an erosion of the recovery of these costs on the short-term market, which could -- depending on how much you think it will erode, could quickly get you into a not so pleasant place from an EBITDA level in the second half year. Operator: The next question from the phone comes from James Hollins with BNP Paribas. James Hollins: So start off with the Logistics division. Clearly, you've shown 50 bps of margin growth year-on-year. Perhaps you run us through what more you're looking to do there on margin expansion, where you think maybe you can get to what projects you're working on? I think you noted margin growth was there in Middle Mile, where else we can see progress coming from there? And the second one was that the old favorite of the Red Sea. Clearly, we've all seen headlines around the data showing some of your competitors going back through the Red Sea. I was just wondering if you could update us on your thought process there? Is it potentially sooner rather than later? Do we absolutely need to see an end of the conflict on the uranium side? What do you need to see to start thinking about going back to clearly you had started? Vincent Clerc: Yes. The Red Sea, we have a review ongoing right now where we're assessing given the situation between the U.S. and Iran, whether we feel that we should also restart the return of some of our services through the Red Sea. There's no doubt that we have a bit of a different threshold than especially some of the competitors that are going through the Bab-el-Mandeb today because that's the same that have had issues in the Strait of Hormuz and have had either people being detained or people getting injured because they took some different chances than we did. So I think we make sure we have a very independent and very cautious approach because we clearly take the safety of our colleagues as our first priority. That being said, there has been no attack in the Red Sea for the entire year so far. And for us, the one limiting factor is the limitation of availability of either escorts or monitoring assets from different European U.S. or other navies to make sure that the crossing is safe. That's what we're working through right now. But it is clearly a topic for us as well to see, and that could free tonnage that we could reinvest into slow steaming opportunities for the services that cannot return immediately because at these bunker prices, that would be a good way for us to bring our cost picture down. On Logistics & Services, I think we're going to continue on the margin expansion. Our goal is still to generate a margin that is above 6% on the portfolio. And I think we'll be able to provide the next quarter as we get through the new breakout on products, a bit more color on what we expect the different areas to deliver. But I think for now, 8 quarters in a row of expansion, we don't expect the theory to end now. We certainly want to continue it. Airfreight, ground freight, contract logistics continue to be the main areas where we're working on. It's reduction of white space in contract logistics. It is continuing the margin expansion and productivity drives in air freight, and it is more revenue management and growth and productivity in ground freight. Those are the levers that we're working on. Operator: The next question comes from Alexia Dogani with JPMorgan. Alexia Dogani: Right. I have 3. If we start with the second quarter, I think kind of can you explain to us a little bit the bunker fuel adjustment lag for the 44% you said is on contract? Because if I understanding correctly, the bunker adjustment factor will really reprice in Q3 rather than Q2. And in relation to that, Vincent, you mentioned about EUR 1.5 billion extra costs per quarter. What do you include in there? Because it appears quite high if you take into account kind of even the peak of the bunker price. That's my first question. Then secondly, can you discuss a little bit about the order book to fleet ratio? I mean this keeps building and it's approaching almost 40%. And deliveries are accelerating in '27 and '28. So clearly, even without capacity management, we're looking at very steep increases even without the Red Sea return. How do you actually see the outlook when you say today, even in the second half, we could see a not so pleasant place for EBITDA? And then finally, do you have any thoughts on Amazon Supply Chain services? Clearly, the contract logistics part of Maersk has not been performing. I don't know if it's still losing money. But if there is an additional capacity entering the consumer space in the U.S. does make your turnaround even more challenging in that sector? Vincent Clerc: Okay. Thank you, Alexia. So the bunker fuel adjustment factor, you're right. market -- normal market practice is that it is adjusted quarterly. In this case, here, we have implemented surcharges and in some cases, changes in the bunker formula so that we can actually start recover immediately simply because of the size of the price hike, it was impossible for us to just shoulder it for a quarter. And that's what we'll be talking about more in 3 months when we meet for the second quarter, but we have been able to basically move forward the recovery of costs so that we match cost increase and revenue increase to the best of the abilities that we have. So that's also similar to some of the questions we had before. So that's the first one. The -- what is important to realize on the cost is we have actually 3 buckets of cost that we're faced with to get up to the EUR 1.5 billion. The first one is the fact that actually bunker cost has increased more than oil price. If you look at it, not all products, not all oil-derived products have increased by the same and actually, bunker has increased more than the average oil price. The second thing is that you have dislocations in the market where the premiums that we pay today over the WTI or the Rotterdam index are higher in many ports than what they are. So what you would normally accept to be your average given where you bunker in the world, that average has been further increased by these locations. And then the other thing is that we have had to take on more cost, we have had to move -- physically move bunker from North America and Europe into Africa, Middle East and Far East in order to secure supply where we need the supply. This comes at a cost. And as well, and it's very high cost because the tanker market has exploded. And we have also a time charter market that has increased significantly as a result of this. So we see significant cost increase out of all of these factors, the biggest one being obviously just the nominal cost increase on the price per ton. Now of course, it depends very much on the price of oil that day. So it has been swinging a lot between $90 and $110. If it's $90, it's going to be a bit less than the 1.5 -- it's going to be a bit less than the $1.5 billion, but still well in excess of $1 billion. If this was to go to $120 or something, then that price could even -- that price tag could even increase. I'll take the order book last, if that's okay, and I'll just go to Amazon SCS. I think the expansion of the Amazon offering is a logical continuation of efforts they have made to build delivery networks in the U.S. domestic market across both ground freight, airfreight and last mile. So Amazon is a great partner of ours. We do a lot of business together. For the most part, I think we're going -- we don't see that at all as being threatening to what we're doing for different reasons. We are active much more on the international scene where they are active much more on the U.S. domestic scene. We are not so active in the express and last-mile delivery compared to what they are. And we -- a lot of the customers that we have are actually customers that price data sovereignty and are extremely cautious in committing data to Amazon systems who would be able to both train their systems further and also learn a lot about how these customers' supply chain and demand and so on works out, which a lot of them have serious quants about. So we see certainly that this is going to be something that becomes a factor in the -- especially the U.S. domestic logistics market in the years to come, for sure. But that we feel that we have sufficient differentiation with Amazon that we don't really see this as being a threat for us at this stage. Finally, on the order book, the order book is in -- as far as I can see, I mean, I would wish that it was smaller, Alex. That's pretty clear. I think that we see that there is a capacity overhang today in May of about 1 million, 1.5 million TEUs. And there was about 2 million TEUs that are basically used to serve the longer routes around the coast of Africa for the service affected that cannot sell to the Red Sea. So it's about 3.5 million TEUs overall that is the capacity overhang, the total capacity overhang to a normalized trade routes today. And the deliveries are okay this year, but they are picking up significantly next year, and that's going to put further pressure on the overhang that we see. My theory is still that it is of a size where if people are disciplined, it's manageable. But we need to see that discipline come into effect. And so far, we're getting disruptions upon disruptions, and that delays actually the need for people to take this on. The higher energy costs are going to trigger a whole new wave of so steaming, I believe. I mean, I can -- we're looking at it ourselves and the cost benefit is quite compelling. So I think that will certainly demand -- high energy costs will demand more ships to cope with -- effectively with the demand. But if we don't pick up scrapping and actually retiring some of the ships that have not been retired over the last 7 years, this is going to be extremely bumpy. But I think that what you can see with this crisis in how quickly and rapidly costs are being recouped there is -- I still have -- there are reasons for optimism that the conduct in the industry is different despite the fact that the CapEx conduct is not very encouraging, conduct on the ground on the P&L is much better than what we have seen in the previous years, and we'll have to see this play out even more in '27 and '28 for sure. Alexia Dogani: And sorry, if I just ask a very quick follow-up. Obviously, we've now had the second quarter of EBIT losses in Ocean. And in the past, you have talked about this on-the-ground discipline that the industry won't allow too many quarters of losses. So we're now in the second quarter. What did you mean then by saying not so pleasant place on EBITDA for the second half? Because I think that's something that the market doesn't want to understand? Like why would the EBITDA not be less in the second half? Vincent Clerc: I think the risk that you have on EBITDA is actually temporary pressure on it from -- the worst that happened to us is if demand softens slowly because before people act on capacity, they first start to use the pricing lever for a while to see if it's -- if that's going to solve the problem for them. If demand was to soften rapidly, just like we can see here, when the cost increase rapidly to get them recovered is good, and we can do it. When cost increases slowly, then it's much more difficult because the you don't have the same urgency. So I think if we saw a gradual softening of demand, you would see a period where people -- or you could see a period where people use pricing levers for a while to try to shore up their utilization. And until you go to an EBITDA-neutral freight rates, that might be tempting until then they start to switch to more capacity-driven tools. That's the concern that -- I don't think it's necessarily likely. But we're trying to have a range that encompasses both the most concerning and the most optimistic scenarios with what we know today. Again, there's a lot of things that have happened since we talked 3 months ago that may also change that. But with what we know today, we feel that the range that we have covers some of the worst scenario we can think of and some of the better scenarios we can think of. Operator: The next question from the phone comes from Lars Heindorff with Nordea. Lars Heindorff: The first one is a follow-up on the slow steaming, Vincent, you mentioned that. I mean I don't know if you can quantify -- I think the average speed around is maybe slightly below 15 knots. I mean how much further down can it go? And what kind of impact will that have on supply? What -- how much can you actually tie up in terms of slowing down? And then the second part is on the savings from the slow steaming. And then a question regarding the costs. There is an other cost item of almost USD 250 million in the first quarter in Ocean. You said that you've been moving -- typically been moving bunker around. Is that related to that? And is that something that you expect to continue to do into the second quarter? Vincent Clerc: Yes. Thank you, Lars. On slow steaming, I think the global networks today, at least on the long haul, they are sailing probably in 16, 17 knots area. And it would be quite -- it would be economical to bring the vessel speed down to about 14, 14.5, 15 knots depending on the service and the route and how you can secure berth windows and so on in the ports. at the current price for bunker is actually it's quite a positive thing. The other thing that would be extremely positive from a fuel cost perspective is actually to reopen the Red Sea, as I think one of the questions previously I was alluding to because when you're sailing from India to the Mediterranean, it's a lot -- you're going to burn a lot less fuel by going through the Red Sea than you will -- if you have to go the long route as we do today. So those are the 2 things that we certainly are looking at. And it depends on the industry. It's pretty hard to assume exactly what people are going to do. I don't know. I only know what we're looking at. But if people were to do something similar to what we were to do, you could absorb between 1 million and 1.5 million TEUs in slow steaming effectively by reducing your cost in an economically positive way. So that's about the order of magnitude that there would be for me. And then on the other costs, let me -- let Robert give you an answer. Robert Erni: Yes. You might know that we obviously, like many others, we are trying to hedge some of the bunker costs. So this is, let's say, an unrealized loss on derivatives that we had to take according to the accounting standards. Again, it's unrealized. We'll need to see how this evolves, but that is the additional cost that we have seen. Lars Heindorff: And just, Robert, just on that one, which means that the physical movement of bunkers from North America to Asia, where the cost of that? It sounds terribly expensive. And as Vincent mentioned, DKK 1.5 billion on a quarterly basis. I mean, is that in network cost? Where is that showing up? Operator: We will move to the next question. The next question from the phone comes from Arthur Trans Citi. Arthur Truslove: The first question I had was just around the Red Sea reopening. So if you imagine a scenario in which the hostility is ended tomorrow, what would be the earliest point that you could realistically imagine a full industry reentry to the Red Sea? Second question, just following up on the previous one. Are you able to just articulate how much of the [indiscernible] that you use is hedged? And then final one, if I may. Obviously, consensus EBITDA for the full year is towards the upper end of the range. It sounds like you are talking to a few uncertainties in H2 and potentially around timing even in Q2. Are you comfortable with consensus near the top of the range? Or would you rather it was somewhere else within that range? Vincent Clerc: Yes. So I think first on the guidance, I mean, I don't guide on the guidance. We provide a guidance, and I think that's I'm not going to be able to voice an opinion about where in the guidance is we should be. On the bunker, we don't have -- we don't hedge bunker. So the only thing that we have is how much we have on hand. And -- but we do not do speculative hedging of bunker. And then finally, on the Red Sea, it's really hard for me to talk to when -- how fast this could happen. I mean, as I mentioned, we are looking at it ourselves. It would have to be gradual because at least today, we would not -- we would have to go with either escort or monitoring, and there is limited capacity for that. So there is only so many services that we could send through. And I would think that others would have the same. And for it to be a full return, you would need to feel comfortable with the safety and security assessment that you can sell without any monitoring. And I have no idea given the volatility of the situation between U.S. and Iran for when that is going to be. It could be very soon or it could take a while. Operator: Ladies and gentlemen, thank you. That was the last question. I would now like to turn the conference back over to Vincent Clerc for any closing remarks. Vincent Clerc: Thank you again for joining us today. To summarize, we have started 2026 with a quarter marked by strong volumes across all segments and equally important with is the strong cost containment that we have demonstrated, especially in Ocean, where we have seen a downward trend in unit cost since the inception of Gemini. Oversupply continues to affect container shipping, extend exerting downward pressure on rates that are visible in this quarter. While demand remains strong, this continued oversupply makes the ocean market environment very volatile. Nevertheless, as far as the Middle East conflict is concerned, its financial impact in the first quarter was limited, and we expect it to be managed without material financial impact in the coming quarters. Ultimately, notwithstanding the ongoing disruptions brought about by the conflict, the strength and the resilience of our business means that we are in a position to maintain full year guidance for 2026. Thank you for your attention, and we look forward to seeing many of you on the upcoming roadshows and at conferences. Thank you very much, and see you soon.
Operator: Greetings. Welcome to Shake Shack's First Quarter 2026 Earnings Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to Alison Sternberg, Head of Investor Relations. Thank you. You may begin. Alison Sternberg: Thank you, operator, and good morning, everyone. Joining me for Shake Shack's conference call is our CEO, Rob Lynch. During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are available in our earnings release and the financial details section of our shareholder letter. Some of today's statements may be forward-looking, and actual results may differ materially due to a number of risks and uncertainties, including those discussed in our annual report on Form 10-K filed on February 26, 2026, and our other SEC filings. Any forward-looking statements represent our views only as of today, and we assume no obligation to update any forward-looking statements if our views change. By now, you should have access to our first quarter 2026 shareholder letter, which can be found at investor.shakeshack.com in the Quarterly Results section and as an exhibit to our 8-K for the quarter. I will now turn the call over to Rob. Robert Lynch: Thanks, Alison, and good morning, everyone. I want to start by thanking our incredible team members across the globe who continue to bring enlightened hospitality to life every single day. Your dedication to serving our guests with care and kindness is what makes Shake Shack special. I'm grateful for everything that you do. Turning to our results. I'm pleased to report that our first quarter performance showcases continued sales momentum in our company-operated Shacks and meaningful progress against our 6 strategic priorities for 2026, which are building a culture of leaders, optimizing restaurant and supply chain operations, driving comp sales behind culinary marketing and digital innovation, building and operating our Shacks with best-in-class returns, accelerating our license business and investing in long-term strategic capabilities. For the first quarter, we grew total revenue by more than 14% -- much of this growth came from same-Shack sales growth of 4.6%, including a 1.4% traffic growth. These strong sales and continued traffic growth were achieved despite significant weather impacts that contributed 240 basis points of negative comp in the quarter, negatively impacting our EBITDA for the quarter. Despite these headwinds, our sales and traffic momentum continued, and we have now delivered 3 straight quarters of traffic growth. At the core of our sales performance is, first and foremost, strong restaurant operations that deliver guest satisfaction. Secondly, is culinary innovation that differentiates our brand. And lastly, our investments in targeted digital media to create awareness of our guest value proposition. In Q1, we increased investments in delivering guest satisfaction, driving comp and opening new Shacks. And despite elevated beef costs that continue to persist, we were able to expand our restaurant-level profit margin by 50 basis points year-over-year to 21.2%. We continue to show our ability to grow both top line sales and operating margin, primarily through ongoing traffic driving programs and operational and supply chain productivity. We also delivered our largest first quarter of new units ever with 17 new Shacks. We continue to successfully bring Shake Shack to new and underpenetrated markets, many outside of our historical footprint. Given our strong current cash-on-cash returns and expected future returns, we will continue to accelerate our company-operated development efforts. Consistent with this strategy, we are now guiding to 60 to 65 new company-operated Shacks for 2026, an increase from our prior guidance of 55 to 60 Shacks. I would call out that opening this higher number of new Shacks in Q1 did increase our total preopening costs, which weighed on our adjusted EBITDA for the quarter. Throughout the quarter, we made strategic investments to support our sales driving initiatives and new unit openings, both of which support our multiyear growth plans. These investments allow us to bring Shake Shack to more communities and create awareness of what makes our food and hospitality so special. These investments continue to enhance our strong value proposition and drive traffic in this value-oriented environment. As we work to continue to enhance our value equation in a very competitive marketplace, we're focused on making the right investments in our food, our assets, our team members and our traffic-driving strategy. As a result of the weather headwinds that we experienced and our investments in additional new store openings, our first quarter adjusted EBITDA did not meet our short-term quarterly expectations. That being said, we are confident that the foundation that we are building today positions us for long-term growth, and we remain confident in our long-term strategic plan. Still, given the volatility in the global and domestic marketplace, we are broadening our 2026 adjusted EBITDA guidance to a range of $230 million to $245 million. Despite that volatility, I am excited to share that our sales momentum is building in Q2 and that we are reiterating our 2026 guidance for Shake-Shack sales, restaurant level margins and our long-term financial targets. After making the strategic decision to focus our traffic-driving investments in May and June, we're excited to see very strong performance to start May behind the launch of our Baby Back Ribs Sandwich and anticipate strong sales growth in June as we expect to leverage the incremental traffic in some of our largest markets driven by the World Cup. And despite a slower start in April, driven in part by the shift in spring break timing associated with the Easter holiday, we're confident in our guidance for Q2 at 3% to 5% comp growth. Over the last 2 years, we have built a best-in-class executive team. A performance-driven restaurant operating model, a sales engine that can consistently drive transaction growth, a supply chain that is increasing productivity and a domestic development capability that is profitably accelerating the growth of our restaurant count on our way to 1,500 company-operated Shacks. Shake Shack is well positioned for the balance of 2026 and beyond. Now I will discuss our progress against our strategic priorities. At Shake Shack, our performance is directly correlated to the quality of our team members. I've invested a significant amount of my time over my first 2 years cultivating an executive team that is uniquely positioned to achieve our ambitious aspirations. Today, I'm excited to announce the newest member of our executive team. Michelle Hook will be joining Shake Shack as our new CFO next week. When we set out on this search, I thought that it would be very difficult to find a new CFO that met every criterion that was important to us. I'm ecstatic that we found a candidate that does. Michelle comes to Shake Shack with over 25 years of public company restaurant experience, including the last 5.5 years where she has served as the CFO of Portillo's. Michelle's experience leading FP&A, accounting, treasury and IR, coupled with her long track record of leading teams with a commitment to building a strong culture will allow her to hit the ground running and make an immediate positive impact on our organization. I look forward to introducing her to our investment community over the coming weeks. As we look to the balance of 2026, our focus will be on delivering significant value to our guests, leveraging both the numerator and the denominator of the value equation to accomplish this objective. We will employ a balanced approach leveraging premium core ingredients, culinary forward LTOs and a focus on guest satisfaction through enlightened hospitality to drive the numerator of the value equation. For the denominator, we will continue to focus on decreasing our reliance on base pricing and employ strategic focused price pointed offerings like our 135 platform to profitably grow our transactions in a value-oriented macro environment. We continue to make strategic investments in marketing to drive traffic and frequency. These investments have been primarily focused on creating a foundation for long-term revenue growth as opposed to short-term traffic burst. We are accomplishing this by motivating new guests to enter into our app and digital channels. We have also seen a frequency increase amongst our current guests in these channels. This increase in the population of our digital community will support the launch of our loyalty program towards the end of this year, and the results of these investments have exceeded our expectations. We have grown both our digital channel guest count and app downloads by over 35% year-over-year. Even more importantly, the lifetime value of our digital channel guests has grown by approximately 20%, driven by an increase in frequency from this highly engaged group. These guests visit us more often and spend more on an annual basis. With these strategic platforms, we are offering an improved value equation across all household incomes, which we believe will result in a broader guest base, sustained loyalty and greater lifetime value. These are long-term benefits from our current investments. On the brand building front, our We Really Cook campaign is resonating. We are seeing significant quarter-over-quarter increases in guest engagement on key media platforms as we refine our targeting and creative execution. This campaign reinforces what sets us apart, our commitment to fresh premium ingredients, cook-to-order and true culinary craftsmanship. Our culinary team continues to deliver bold flavor forward innovation. Adding to our successful return of the Korean-inspired menu launch in January, we introduced our Clubhouse Pimento Cheeseburger and Pimento Chicken Sandwich in March, which was inspired by a Southern Classic and reimagined with a Shake Shack Twist. These items performed strong nationwide and contributed to our sales growth in Q1. In late April, we announced the return of our Smoky Barbecue menu platform, anchored by a first-of-its-kind barbecue boneless Baby Back rib sandwich, along with a new Mac & Cheese side. This premium protein innovation is indicative of our ability to successfully deliver more than just the best burgers in the business. The BBQ Rib Sandwich is made with 100% baby Back pork ribs that are hand deboned, slow cooked for 9 hours and marinated in a proprietary barbecue spice blend with apple cider vinegar. It's a perfect example of our ability to develop and execute innovative Shake Shack-only recipes at scale without disrupting our operations. I'm happy to report that both the Baby Back Rib Sandwich and the Mac & Cheese have significantly exceeded our expectations and are driving outpaced traffic and ticket growth in May. We're also expanding into new beverage occasions intended to increase relevancy in all dayparts. Our new sparkling cucumber basal lemonade, our first sparkling lemonade, provides a delicious refreshing offering to complement lunch and dinner, but also gives us a platform to drive more afternoon beverage occasions with expected strong guest satisfaction and strong margins. All of this innovation is supported by our disciplined stage-gate process that has resulted in a 12- to 18-month pipeline of innovation, which positions us to deliver a consistent cadence of high-impact menu items. Our innovation strategy is driving both near-term performance and long-term brand relevance as we continue to differentiate Shake Shack through culinary leadership. We will continue to drive sales and traffic growth while improving our productivity across the company, and we are confident in our ability to drive continued margin improvement in a competitive inflationary environment. Foundational to those objectives is the recently announced Project Catalyst. Our comprehensive technology initiative designed to make us more productive across our company, which will be critical to creating long-term G&A leverage. Through strengthening our digital, data and operational framework, we expect to improve restaurant execution, deepen guest engagement and unlock enterprise productivity, all while enhancing our ability to deliver enlightened hospitality. Let me walk you through the key components. First, we're modernizing our restaurant systems. We've partnered with Q, a cloud-native unified commerce platform to upgrade our point-of-sale and kitchen display systems. These new systems will improve throughput, order accuracy and consistency, particularly during peak periods. They'll also enable better orchestration across digital and in-Shack ordering channels, giving our team members faster, more reliable tools so they can stay focused on what matters most, delivering hospitality to our guests. Second, we're building Shake Shack's first-ever loyalty platform. This will be a very meaningful platform for our brand. Our objectives in launching this new platform are to drive frequency, retention and lifetime value while enabling more personalized guest communication and enlightened hospitality. It's not just about points and discounts. This capability supports our continued journey towards data-driven targeted engagement that resonates with our guests and creates deeper connection with the Shake Shack brand. It will help us to reinforce the core principles of enlightened hospitality that launched Shake Shack as a company and continue to differentiate us in the marketplace. Third, we're investing in a new generation of proprietary AI capabilities, embedded directly into daily operations. These AI tools will provide real-time operational insights, alerts and recommendations at the Shack level and for our above Shack operational leaders, enabling faster and better informed decision-making for our restaurant operators and support teams. This intelligent operating layer will deliver measurable productivity gains and form the foundation for ongoing performance enhancement over time. Finally, we're advancing a unified data and analytics platform that brings together operational performance, guest behavior and advanced analytics. This data backbone will support improved service speed and accuracy, more personalized guest experiences and the continued expansion of AI-driven capabilities at scale. We expect to begin rolling out these systems in the second half of 2026, and these investments position us to deliver an even better experience for our guests and team members. Turning to operations. Our operations have never been stronger, and I couldn't be prouder of our team. In March, we hosted our first ever Operations Leadership Summit, where we celebrated an outstanding 2025, recognized best-in-class leaders across our company and outlined our vision to meet both our short- and long-term goals. Our operational focus in 2026 centers on 2 things our guests value every single time they visit us, our hospitality and the accuracy of the order that we deliver. Over the past 2 years, we've driven meaningful gains in speed of service, and we are now averaging under 6 minutes on ticket times of cook-to-order food, a significant improvement. However, speed cannot come at the expense of accuracy, food quality or hospitality. With the tools that we are putting in place, we expect to not only get faster, but to also get better, delighting our guests, which will in turn drive frequency and loyalty over the long term. Our operations performance scorecard continues to serve as the backbone of how we drive continuous improvement, and we've updated the metrics to reflect the sharpened focus on hospitality and accuracy. Even as a growing share of orders flow through our kiosks and digital platforms, we refuse to let efficiency come at the expense of connection. We've intentionally redeployed labor toward guest engagement through our front-of-house hospitality champion role. It's a deliberate investment to ensure there's a human touch point in every Shack, regardless of how the order was placed. I'm also happy to report that our team member tenure and retention has continued to steadily increase. You might think that more rigor and operating discipline would create more turnover, but it's just the opposite. Our team members are experiencing a high-performance environment, seeing opportunities to advance their careers and they're staying longer. That tenure builds experience, which makes them better able to serve our guests, and that makes us a better operating company. It also allows us to develop the leaders of tomorrow, which will support our continued new Shack growth. This culture has led to improved guest satisfaction across restaurant cleanliness, friendliness and overall experience. And we're delivering these results by making sure that we have the right labor in the right Shacks at the right time. Supply chain optimization continues to deliver the highest quality ingredients in a more productive way. We've restructured our internal teams to unlock productivity across every node of the supply chain model. And we've built a strategic sourcing capability that is fully connected end-to-end, delivering the cost visibility that we need to make smarter, faster decisions. We're partnering in new ways with both new and current suppliers, optimizing our distribution network and leveraging our scale to drive efficiencies, all while maintaining the quality standards that define our brand. In Q1, we realized cost savings through strategic sourcing initiatives, successfully transitioning key ingredients to new suppliers who meet our rigorous specifications while providing better economics. Before making any changes, our culinary, quality assurance and operations teams test and validate that if there is any change in taste or guest experience, it is for the better. These improvements are flowing through to better unit economics and directly supporting our priority of building and operating our Shacks with best-in-class returns as we scale. Turning to our license business. Our license business continues to be a long-term strategic engine for EBITDA growth. However, the short-term results have been and will continue to be impacted by the ongoing conflict in the Middle East, driving some of our rationale for a broader adjusted EBITDA guide in 2026. The conflict has led to business disruptions ranging from temporary closures to reduced operating hours and delivery-only operations for periods of time. Beyond these impacts, inbound tourism has slowed substantially, which has further pressured sales, particularly at high-traffic locations. Despite these near-term headwinds, we stand side-by-side with our license partners and the long-term opportunity in these markets. We've seen some delays in opening time lines, but as of now, we still plan to achieve our target of 40 to 45 licensed unit openings in 2026. We will continue to monitor the situation closely and provide additional updates as we move through the year. Domestically, our company-operated development pipeline remains robust. As I mentioned, we had a momentous first quarter with a record 17 openings compared to 4 openings in the first quarter last year. We also opened new markets, such as Naples, Florida; Tucson, Arizona; Athens, Georgia and East Lansing, Michigan. This is the start of a record year of growth for Shake Shack as we march toward opening 60 to 65 new company-operated Shacks. We continue to see strong results from our cost containment strategies and see similar build costs for the class of 2026 as compared to last year. We also continue to invest in our existing Shack base through targeted remodels and refreshes that enhance the guest experience and improve operational efficiency. I'm energized by the momentum in our business and the opportunities that lie ahead. We have a clear strategy focused on driving same-Shack sales growth and transactions, expanding our footprint with disciplined development and improving profitability across the enterprise. Project Catalyst will provide the technological scaffolding that we need to scale efficiently while enhancing the experience for our guests and team members. Our marketing investments are building brand strength and driving consistent traffic growth. Our culinary innovation is creating excitement and brand affinity, which differentiates us in the marketplace. And our operational improvements are delivering better guest experiences and stronger unit economics. Most importantly, we have an exceptional team executing with discipline and passion. From our restaurant team members who serve our guests every day to our leadership team driving strategy and innovation, we have the right people focused on the right priorities. I've never been more confident in our ability to build Shake Shack into the best restaurant company in the world. Our premium quality enlightened hospitality and a focus on supporting our team members drives prosperity for Shake Shack and our shareholders. And with that, I'll turn it over to Alison to provide more details on the quarter. Alison Sternberg: Thank you, Rob, and good morning, everyone. Our first quarter results showed the resilience of our business in the face of a challenging macro environment and inclement weather. The quarter marks our 21st consecutive quarter of positive Same-Shack sales growth alongside continued year-over-year restaurant level margin expansion. First quarter total revenue reached $366.7 million, up 14.3% year-over-year, supported by the opening of 17 new company-operated Shacks and 5 new licensed Shacks, leading to 14.1% year-over-year growth in system-wide sales. Our licensing revenue was $12.7 million in the quarter, with licensing sales of $204.3 million, up 13.8% year-over-year, driven by continued strength in Asia, U.S. airports and the United Kingdom. Sales growth was partially offset by the ongoing conflict in the Middle East, where we had temporary closures in 17 licensed Shacks in Q1 with 3 locations at airports and a transit center remaining closed from the onset of the conflict through the end of the quarter. In our company-operated business, we grew Shack sales 14.3% year-over-year to $354 million. we generated roughly $72,000 in average weekly sales, flat year-over-year. We delivered 4.6% Same-Shack sales growth with 1.4% positive traffic and 3.2% price/mix. Our Same-Shack sales growth was driven by the success of our culinary and marketing initiatives despite a 240 basis point headwind due to inclement weather in Q1. Our pricing remained disciplined. And in March, we rolled off the price we took on our delivery channels last year, an approximate 1% impact. In-Shack menu prices for the first quarter came in at about 3%, while blended pricing across all channels increased approximately 4%. This compares to approximately 5% last year, demonstrating our ability to deliver positive Same-Shack sales with less dependence on price increases. April AWS was $75,000, down 2.6% year-over-year and Same-Shack sales decreased by 0.6%. The month Same-Shack sales were negatively impacted by approximately 200 basis points, largely due to the shift of Easter weekend spring breaks into March this year compared to last. Additionally, we continue to see declines in tourism in our largest urban markets, particularly in New York City. First quarter unit development was strong with 17 new company-operated Shacks ahead of our guidance for 12 to 14 new Shack openings. As a result of these Shacks opening earlier than planned, preopening costs were higher in the first quarter to support our strong opening schedule for 60 to 65 new Shacks in 2026. First quarter restaurant level profit was $75.1 million or 21.2% of Shack sales, expanding 50 basis points versus last year. Strong benefits from our labor management strategies alongside procurement-driven cost improvements and other items in our commodity basket helped offset higher beef costs and demonstrate our ability to sustain profitability despite beef headwinds. That said, restaurant level margins came in slightly below our expectations for the quarter due to higher other operating expenses, mainly due to the timing of investments in repairs and maintenance expenses to support our Shacks and some mix impact of our marketing initiatives. In the first quarter, food and paper costs were $100 million or 28.3% of Shack sales, 50 basis points higher versus last year. The increase year-over-year was mainly driven by the mix of promotional activities to support our culinary innovations during the quarter. Blended food and paper inflation was down low single digits with beef costs up low teens and paper and packaging costs down low single digits year-over-year. Through proactive procurement and cost mitigation initiatives, our teams meaningfully offset continued beef inflation without taking additional price. Labor and related expenses totaled $92.7 million or 26.2% of Shack sales, representing a 180 basis point improvement year-over-year, driven by more efficient scheduling and deployment through our labor management strategies. As we move through the year and fully lap the benefits of the implementation of our new labor model, the year-over-year improvement in the labor line will be more muted with our supply chain initiatives driving restaurant level margin expansion going forward. Other operating expenses were $57.5 million, or 16.2% of Shack sales, 60 basis points higher versus last year, largely driven by the timing of repairs and maintenance expense and the growth of third-party delivery. Our digital sales mix increased to 39.9% in the first quarter. Occupancy and related expenses were $28.7 million or 8.1% of Shack sales, 20 basis points higher year-over-year. First quarter G&A totaled $53.6 million or 14.6% of total revenue, reflecting incremental investments in marketing and technology as well as continued investments in our people to support growth and strategic initiatives. As we mentioned on our fourth quarter call, our marketing plan for 2026 is more evenly distributed across the year. As a result, our quarterly G&A expense is expected to remain relatively steady from an absolute dollar standpoint each quarter of 2026 and will be relatively consistent with what we spent each of the last 2 quarters to land within 12% and 13% for the year. This results in a higher year-over-year G&A step-up in the first half, tapering off in the back half of the year. As we discussed last quarter, we plan to deliver G&A leverage in 2027. Equity-based compensation was $5.2 million, 13.6% higher year-over-year with $4.6 million hitting G&A. Preopening costs were $6.9 million, up 113.5% year-over-year, reflecting 17 new Shack openings in Q1 2026 versus 4 in Q1 2025. We have approximately 37 Shacks under construction and the largest pipeline of new Shacks that we've had in our company history. Adjusted EBITDA of $37 million or 10.1% of total revenue declined 9.3% year-over-year, resulting from sales underperformance due to weather and macroeconomic factors alongside strategic investments to support our multiyear growth plans. Depreciation was $29.1 million. The increase in depreciation year-over-year, both in the first quarter and throughout 2026 is a result of more new company-operated openings, coupled with new technology investments. Net loss attributable to Shake Shack, Inc. was $290,000 or a loss of $0.01 per diluted share. Adjusted pro forma net income was $88,000 or earnings of $0 per fully exchanged and diluted share. Our GAAP tax rate was 33% and our adjusted pro forma tax rate, excluding the tax impact of equity-based compensation, was 25.5%. We ended the quarter with $313.7 million in cash and cash equivalents on our balance sheet. Now on to guidance for the second quarter and full year 2026. Our outlook assumes no major changes to the macro or geopolitical environment. For the second quarter of 2026, we expect system-wide unit openings of 24 to 27 with 16 to 19 company-operated openings and approximately 8 license openings. Total revenue of $424 million to $428 million with same-Shack sales up 3% to 5% licensing revenue of $13.5 million to $13.7 million and restaurant-level profit margin of 24% to 24.5%. Our pricing plans for this year remain modest, assuming no outsized macro changes. We plan to exit the second quarter with approximately 4% overall price and continue to expect price across all channels to be up approximately 3% for the full year. We will continue to evaluate the need for pricing as our dynamic cost structure continues to evolve, but our intention is to take a limited amount of pricing. On to our full year 2026 outlook. Given the impacts that we've seen in the first quarter, we now expect to open 60 to 65 company-operated Shacks this year as our new Shack openings are tracking ahead of plan and more heavily weighted to the first 3 quarters of the year. We continue to expect total revenue of approximately $1.6 billion to $1.7 billion, driven by low single-digit same-Shack sales growth year-over-year. Given headwinds in the Middle East, we now expect licensing revenue of $57 million to $59 million. We still plan to open 40 to 45 licensed Shacks this year. We expect restaurant level profit margin of 23% to 23.5%. We are planning for food and paper inflation to be down low single digit year-over-year after accounting for our own supply chain strategies. Beef inflation is expected to continue at the high single-digit levels. We expect labor inflation to be in the low single-digit range. G&A investments are expected to be toward the higher end of our guided range of approximately 12% to 13% of total revenue to support our strategic investments in growing the business and driving greater brand awareness. We continue to expect approximately $28 million of equity-based compensation expense with about $25 million in G&A. We expect full depreciation of $124 million to $128 million and preopening of approximately $26 million to $28 million. We expect net income of $50 million to $60 million. Altogether, we now expect adjusted EBITDA of $230 million to $245 million, representing 10% to 17% growth year-over-year. Thank you for your time. And with that, I will turn it back over to Rob. Robert Lynch: Thank you, Alison. I want to thank our teams again for their hard work and passion for Shake Shack, which is the engine behind our ability to achieve our long-term goals. Thank you to everyone on the call today for your interest in our company. And with that, operator, please open up the call for questions. Operator: [Operator Instructions]. Our first question is from Brian Vaccaro with Raymond James. Brian Vaccaro: So just on the first quarter comps, and can you elaborate on the underlying cadence that you saw through the quarter? Any changes in consumer behavior that you've seen more recently that might be tied to higher gas prices and the Iran conflict? But also maybe provide some more color on how the value initiatives like 135, Chicken Shacks on Sundays performed in the quarter. And just curious how that might be positively impacting value perceptions or frequency among certain consumers. Robert Lynch: Thanks, Brian. Great question. We had relatively consistent sales rates throughout the quarter. We didn't see significant changes. We did see a little bit of softening in the back half of March, but not at a significant rate. And so we were -- we made a lot of our investments in February behind the launch of our Korean launch and some of the innovation that we were planning. So most of the weather impact we saw was January and March. We had anticipated even higher sales heading into Q1. So we made a lot of investments heading into Q1 with a sales plan that we would have achieved had we not seen those weather impacts. So our app and digital channels continue to drive significant value for our guests and are growing rapidly. We've seen over 35% growth in our digital channel entrance rate, so 35% downloads of our app, and that is driving a lot of our traffic growth. And we feel great about that. We feel like that is a long-term investment that we're making. It is not a short-term promotion. These folks are coming into our digital community and they're staying. And their frequency is higher than our nondigital guests. And when you think about the value prop that we offer today in our app, you can get a Shack burger fries and a beverage, a Coca-Cola for around the same price as you can get a lot of our other competitors for the same thing. So on average, an $8 Shack burger, $3 fries and $1 drink, you're talking about a $12 combo meal, if you want to call it that, we don't call it that. That makes us really competitive. That puts us in the universe of other brands that can persevere through these value challenged and value-oriented times. So we feel great about level setting that value equation. We also feel great about launching very premium culinary innovation. I would tell you, and I highlighted in the comments, we launched a $12.99 BBQ Rib Sandwich a week ago, and we're seeing huge demand for that innovation at that price point. So we really feel that we can play at both ends of the barbell -- we can deliver great value on our core and continue to drive traffic through new guest acquisition and repeat, but we can also drive frequency and check growth with our most engaged guests through our premium innovation. So we feel like the sales engine is in place, and that's why we've stayed committed to investing behind it. Operator: Our next question is from Christine Cho with Goldman Sachs. Hyun Jin Cho: Rob, it's really encouraging to see 3 consecutive quarters of positive traffic growth and really appreciate the quarter-to-date color. But could you elaborate on the key factors driving your confidence in that Q2 same-store sales growth guidance of 3% to 5% as well as the sustainability of this momentum through the second half of the year? And I think you mentioned a potential lift from the World Cup. How much of that benefit is currently embedded in your guidance? Robert Lynch: Yes, you're welcome. So we are highly confident in our guide for Q2, driven by what we're seeing both on our core business with our app driving a lot of growth and strength in our digital channels, complemented by the success of our premium LTO innovation. So we are -- we saw last week with the launch of this innovation, we saw 8% comps and 5% traffic. So we are seeing huge demand for the culinary forward innovation that we're bringing while underpinning that being able to go out and also deliver a great value proposition for a different consumer and primarily a newer consumer, right? Our new guests, when they come to Shake Shack are going to want to try the best burgers in the world. Like that's what they come for. They come for the Shack burger fries and Coca-Cola. And when they get there, we have to have a value proposition that allows them to come in and feel great about the money that they paid for that. And so that's what the app is designed to do. And we're using that app as a guest acquisition tool. But we also need to continue to differentiate ourselves in the space. We are not going head-to-head with the likes of the QSR value players from a holistic business proposition. We are going to continue to offer premium ingredients and culinary innovation and the best hospitality in the business with great assets. So when our guests come, it's a different experience than you typically see in traditional QSR. So that balance is working, and we're going to continue to invest behind it. On the World Cup side, I mean, we're not going to get into specifics about what our model looks like. But our -- the markets where the World Cup is being played are all markets where Shake Shack has a high degree of penetration. And Shake Shack in markets where we have a high degree of confidence in our ability to drive traffic to our restaurants regardless of whether there's the World Cup or not. So that influx of traffic is just going to benefit and accelerate the business that we do in those -- some of our best markets. So we're really excited about Q2. As we look to the back half of the year, we have more innovation coming. We have great items across our shakes, beverages, core sandwiches, and we're going to continue to invest in the marketing fuel that is driving a lot of this traffic. Operator: Our next question is from Michael Tamas with Oppenheimer & Company. Michael Tamas: It seems like your same-store sales are implied to be a little bit slower in the second half of the year versus the first half of the year. So can you sort of speak to the confidence in hitting that full year margin guidance of 23% to 23.5% as sales moderate a little bit in the second half of the year? And maybe how you're thinking about that split between COGS, labor and other OpEx? I mean, is it about COGS deflation that's going to drive the majority of that expansion? Or how do you want to think about that? Robert Lynch: Yes. I mean I would tell you that the 50 basis points growth that we had in Q1 was a bit muted given some of the revenue shortfall that we saw from some of the weather. So just the leverage impact. As we look forward, we continue to be able to -- we continue to see the path to continue to expand those margins. We have a lot of supply chain work going on that is already flowing through in a big way. So obviously, beef prices are elevated, continue to be elevated, although the rate of growth on the beef pricing that we're seeing is less than it was last year. And we're actually seeing a lot of cost mitigation and other items in our basket. And some of that is the macro markets and a lot of it is the work that we've done in our supply chain. So from a cost side, we're doing a lot to mitigate the cost of the inputs into our business model. On the revenue side, you're right. We delivered 4.6% comp in Q1. We're guiding to 3% to 5% in Q2. We're guiding to low single digits for the year. So that does imply a softer comp in the back half. And the reason for that is we're going to start lapping some of the marketing investments that we made in the back half of last year versus being fully incremental. So we're accounting for that. We still have a lot of confidence in our ability to drive strong performance on the top line. We're seeing continued momentum build. So we want to make sure that both our broadening of our EBITDA guide as well as the reiteration of our low single-digit comp guide takes into account some of the macro risk. I mean the reality is none of us know what's going to happen tomorrow, much less what's going to happen 3 months from now. So there's consumer sentiment driven by a lot of the macro factors. There's cost in commodities driven by macro factors. So we really thought very carefully about our guidance for this call because we want to make sure that we're informing our investors that we are very confident in our organic business model, but we recognize that there is volatility in the marketplace, and we want to express our guidance and show the risk of that volatility in that guidance. Operator: Our next question is from Brian Mullan with Piper Sandler. Brian Mullan: Congrats on the CFO hire. Congrats to Michelle. Related to that, Rob, last call, you said the new CFO would, I think, share some sort of G&A plan when he or she begins. Just to better understand, has that plan already been largely formed? Or would the new CFO need to kind of undertake that work from scratch once she begins? And you talked about Project Catalyst in the prepared remarks. I just -- are these one and the same? Or are these kind of just 2 separate topics? Any color would be great. Robert Lynch: Project Catalyst will definitely be an asset for us as we create G&A leverage moving forward. we have built these tools that I highlighted in the comments, and we shared with our Board last week, and we rolled out to our team members 2 weeks ago. The technology -- we've made a lot of investments. Like I want to be clear. The G&A is up $13 million this quarter versus a year ago, all right? Like I don't think about that lightly. Some of that investment was the Operations Summit that we had this year, which we haven't had before. So we had to obviously pay for that. But we felt like it was important for -- to recognize the great job that our operators did last year and lay out our vision for the future. So that was incremental. We obviously are investing in marketing, but we're also investing heavily in tech and Project Catalyst is a big part of that. And the infrastructure that we're building is going to make us dramatically better. It's going to make us better from an operating standpoint. Our operators today don't have a lot of the tools that they need to make real-time decisions. Our above-restaurant operators are spending huge amounts of time pulling reports and sourcing data to be able to have conversations with our GMs about their business. All of that time is going to be significantly reduced. And our folks in the field are going to be able to have real-time information to make informed decisions. So that's going to improve the quality of those decisions. It's also going to reduce the amount of capacity necessary to build those conversations. So there is a huge amount of value creation in Project Catalyst for us. And so to your original question around Michelle, Michelle is going to come in and have a lot of great work on her plate. And she obviously has all the experience and all the capabilities to be able to contribute in a big way to the work that's going on here. G&A, we obviously have a plan. We have a road map. We have things that we're doing and how we're thinking about it for the balance of this year and moving forward. But Michelle is absolutely going to come in and weigh in on all of that and have a point of view. Michelle and I are committed. We had a big discussion about this. We're committed long term to growing EBITDA faster than revenue and making sure that we're continuing to enhance our operating margins as a company. So that's going to be the work we're doing. And in order for us to continue to do that, we have to get better on the G&A line, but we have to make sure that we're making the right investments to drive the long-term outcomes. And right now, it's all about battling for share in this marketplace. we cannot afford to lose guests right now. And so we are making those investments. And yes, none of us are super excited about the way the EBITDA showed up this quarter. There's a lot of moving pieces there. There's a lot of timing. Opening up a lot more restaurants this quarter cost us a lot more, but we wouldn't make the decision not to do it. So we made some decisions knowing that this was going to be the outcome, but we have the most confidence we've had on the path forward. Operator: Our next question is from Peter Saleh with BTIG. Peter Saleh: Rob, I did want to circle back on that last comment you made on the decision to pull forward some new unit growth. Can you guys elaborate a little bit on that decision and maybe the impact that you saw in the first quarter from pulling forward some new units? And then I had a quick follow-up as well. Robert Lynch: Got it. So it's not necessarily that we pulled them forward. We just built them better, faster. So we obviously guided to a range for the year and gave guidance on how many we would open in Q1. And we're just getting better at opening restaurants, frankly. We're getting better on the construction side, on the equipment procurement side and on the operations and preparation it takes to open up a restaurant successfully. So we're just moving faster, and that's why we're able to take our guide up for the year. It's not just pulling forward from 1 quarter into this quarter. It's actually building restaurants faster. So with the same quality. So that really -- it wasn't as much a pull forward. It's just we're accelerating. On the amount that it cost, I mean, we opened 4 more restaurants than the midpoint of our guide. So you can kind of do the math on historically what we -- our preopening costs are for those restaurants. And it's not exactly 1:1 because we have a lot of preopening costs that flow from quarter-to-quarter because we're incurring preopening costs right now for next quarter. And as you think about the rate of acceleration and the fact that we're opening up so many restaurants in Q2, some of those preopening costs actually hit Q1. So that acceleration is great. We wouldn't change it. We're going to continue to build more restaurants. We love the returns. But it is a different cost profile on a quarterly basis, which did impact our results in this quarter. Operator: Our next question is from Sara Senatore with Bank of America. Sara Senatore: I guess maybe just 2 questions on the margins. One is you mentioned that cost of goods were -- the inflation was negative low single digits, but you did see some margin pressure there. So is that promotions or the in-app value menu? And I guess the related question is, as you think about supply chain initiatives, and I think you said those will be the primary driver of margin expansion going forward versus labor. The dynamic was reversed in the quarter. So what -- I guess, what's still ahead of you? And how should I think about sort of the mix of those 2 margin components in the next few quarters? Robert Lynch: Yes. Great question. So we did grow the margin 50 basis points, right? So we did make improvements. It was -- when we say we missed on margin, it's just relative to our guide. So we did anticipate higher margins than we delivered despite growing the margins 50 basis points. And a lot of that was just sales deleverage relative to our plan that formed our guidance. So we came into this quarter with a significantly higher sales rate than what came -- what the outcome was. And that was primarily the weather. And if everyone recalls, we had some bad weather in 2025. Q1 2025 was not a great quarter for anyone. wildfires, blizzards, the whole thing. So we didn't plan for a huge negative weather impact in Q1. So if you add that 240 basis points to what we delivered, it's pretty strong comp growth. And so our plans were based on that. the investments that we made in marketing, the guidance that we gave on margin was driven by what we anticipated on the top line revenue. And when that revenue didn't come through, you saw some -- you saw less than -- it was 10 basis points. It's not like we missed it by 100 basis points, but we take it seriously, 10 basis points relative to being within the guide. And the supply chain is driving a lot of the margin right now in addition to continued operational improvements. We've done a ton of work, a ton of work. And that work has also required G&A investment. We had to rebuild a procurement team. We had to hire distribution people. But all of that work is why we have a very high degree of confidence in being able to deliver at least 50 basis points of margin enhancement throughout the rest of the year. Operator: Our next question is from Jeff Bernstein with Barclays. Anisha Datt: This is Anisha Datt on for Jeff Bernstein. As you prepare to launch a loyalty program by the end of 2026, what customer or behavioral insights have been most influential in its design? And how will the program differ from purely points-based or discount-driven offerings? Robert Lynch: Yes. So we've been thinking a lot about -- it's a great question. We've been thinking a lot about this. And we have a big decision to make on -- does the loyalty program, do they just kind of turn into one thing? And we made a strategic decision that, that's not going to be the case. So the app as it list today is going to be a continued way for us to drive value and acquire new guests. The loyalty platform is really intended to drive brand affinity, brand engagement and frequency amongst our most valuable guests. So those 2 objectives will drive a different approach to our app and our loyalty platform. Now the folks that are already in our app will all transition into our loyalty platform because they're current guests. But we will communicate and approach the promotions and marketing that we do on the app differently than the loyalty platform. So the loyalty platform will not just be a way to send discounts. It will actually be a way to drive brand engagement, giving loyalty members unique and special representations of hospitality to drive further engagement, drive affinity and drive frequency. So we're looking at all kinds of different opportunities to do that, whether it's through some of our partnerships with some of our things we've done with partnerships and collaborations in the past, whether it's offering first access to special things that we do. So all of those things will flow through our loyalty platform and the app will kind of stay as a new guest acquisition tool. Operator: Our next question is from Margaret-May Binshtok with Wolfe Research. Margaret-May Binshtok: Just a 2-parter here. I just wanted to ask a little bit about the paid media that you guys have done, the location targeted paid media, how you guys are seeing that tracking in some of your newer markets versus more established markets? And then just wanted to follow up on the remodels that you guys have mentioned are underway, I think, in New York City. Any early reads on what you guys are seeing and any sort of cadence for the rest of the year? Robert Lynch: Great question. So our media, we don't have big national market media budgets. So we have to be very choiceful on what and where we invest. And so right now, our media is invested in 2 ways. One is guest acquisition through delivering a value proposition that's compelling for new guests, and that's primarily marketing our app and our 135 platform. And then it is driving frequency and check benefit through our LTO innovation. So it's a balanced approach in different markets depending upon our market penetration, depending upon the number of guests that we have in the app platform today, which is how we kind of measure the number of current guests versus new guest potential. That will drive a lot of the decisions on how we make -- on how we invest our media. On the remodels, we've been really pleased. We're continuing to invest in remodels. We're 2-year-old company now, and we're starting to see some of these great restaurants that have been in markets like New York for a long time and continue to deliver great revenue and some of our best margins, they get a lot of traffic. We want to make sure that, that traffic is when they show up, they're getting hospitality. And so it's not about making everything brand new and fresh, but it is about making sure that the restaurants feel cared for, making sure that the restaurants are welcoming. And then in addition to that, we're also leveraging remodels as an opportunity to optimize the back of house, right? We've done a lot of testing on kitchen and equipment and kitchen flow. And so when we go in and we know we're going to touch the restaurants, we're going to make sure that those restaurants are set up for the most productivity possible. And so that also can be a revenue driver as we increase throughput because of optimized back-of-house flow. So we're making both of those investments, and we're really happy with where we're at there. Operator: We have reached the end of our question-and-answer session. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Scott Cartwright: Good morning, and welcome to Whirlpool Corporation's First Quarter 2026 Earnings Call. Today's call is being recorded. Joining me today are Marc Bitzer, our Chairman and Chief Executive Officer; Roxanne Warner, our Chief Financial Officer; Juan Carlos Puente, our Executive President of North America and Global Strategic Sourcing; and Ludovic Beaufils, our Executive President of KitchenAid Small Appliances and Latin America. Our remarks track with a presentation available on the Investors section of our website at whirlpoolcorp.com. Before we begin, I want to remind you that as we conduct this call, we will be making forward-looking statements to assist you in better understanding Whirlpool Corporation's future expectations. Our actual results could differ materially from these statements due to many factors discussed in our latest 10-K, 10-Q and other periodic reports. We also want to remind you that today's presentation includes non-GAAP measures outlined in further detail at the beginning of our earnings presentation. We believe these measures are important indicators in our operations as they exclude items that may not be indicative of our results from ongoing business operations. We also think the adjusted measures will provide you with a better baseline for analyzing trends in our ongoing business operations. Listeners are directed to the supplemental information package posted on the Investor Relations section of our website for reconciliations of non-GAAP items to the most directly comparable GAAP measures. [Operator Instructions] With that, I'll turn the call over to Marc. Marc Bitzer: Thanks, Scott, and good morning, everyone. During today's call, you will hear free message from us. First, we finished a tough quarter in our North American business. The month of March, which typically carries the quarter in North America, was exceptionally weak due to these 4 drivers, which I will discuss in further detail in the following slides. Second, we are taking decisive and bold actions to restore North American margins back to a healthy level. We have issued the largest price increase in more than a decade that raised prices by more than 10%, and we're doubling down and accelerating our cost actions despite higher inflationary headwinds. Third, our equity offering and a renewed revolver credit line, which we expect to finalize in Q2, puts our balance sheet in a strong position to weather this difficult industry cycle. Before we get into the numbers, I want to provide a bit of background about the macro environment in North America, not as an excuse, but as context for what happened in the second half of the first quarter. Turning to Slide 7. We can see that consumer sentiment has dropped to its lowest level in 50 years. The consumer sentiment was already on a very low level by any historical standard, but the war in Iran amplified consumer concerns about the cost of living. As a direct result, a consumer sentiment index in the U.S. plunged reaching the lowest level on record in March. Now while our view is that consumer sentiment is unsustainably low and should rebound from here, these events clearly pressured our industry and particularly discretionary demand. Turning to Slide 8, you can see the resulting impact on the U.S. appliance industry. The U.S. appliance industry demand declined 7.4% in the first quarter, with March being down 10%. This level of industry decline is similar to what we have observed during the global financial crisis and even higher than during other recessionary periods. Keep in mind that we are operating in an environment where the rest replacement demand drives more than 60% of the industry, and this part of the demand is relatively stable. So this gives you a sense about how dramatic the impact on [indiscernible] demand was. While we do believe that the negative industry demand in March was somewhat of an outlier, we do not anticipate a full recovery and are now forecasting the U.S. as the demand being down by 5% on a year basis. Turning to Slide 9. I want to share a snapshot of industry pricing over the past 15 months. This picture represents an aggregate view of literally thousands of price points which we collect weekly. It is based on publicly available retail sellout data. While it may be 100% accurate, it is, in our view, directionally correct. In 2025, the multiple changes in tariff policy, delays and [indiscernible] exemptions as well as the effect of inventory preloading by Asian competitors created significant volatility and promotion behavior. However, immediately after Black Friday, pricing improved slightly above pre-Black Friday levels. While the price changes were still below the level needed to fully offset the accumulated inflation and cost of tariffs about a positive development in line with our agitation coming into the year. As you can clearly see the small chart on the top right of the page, after the IEEPA ruling by the Supreme Court, promotion pricing reverted back in the following weeks. We believe the Supreme Court ruling, the broader skepticism about the durability of tariffs and the anticipation of refunds related to the tariff resulted in a resumption of an aggressive promotional environment. It is also obvious that price changes of 1% to 2%, as we've seen in February and March by the competition did not even remotely covered the cost of inflation and tariffs. You can also see that after the price changes, which we announced on April 17, Whirlpool set out prices, as determined by our retail customers have moved up by 10% compared to January 2025. At the same time, the behavior from our competitors has shifted more favorably. The key development for U.S. appliance industry this quarter was with change in Section 232 tariffs which brought clarity and predictability to the tariff landscape. We will later discuss these changes in detail. But what might appear as a small change in the 232 tariff has significant and lasting ramifications of the entire industry. Essentially, every imported appliance into this country, irrespective of where it comes from, will have to pay a tariff of 25% on full product value. And in the case of China, even more. The combination of drop in consumer sentiment, decline of consumer demand and the irrational industry pricing created an almost perfect storm during this first quarter. But we are taking decisive and bold pricing and cost actions we expect will bring our North American business back on its path towards healthy margins. With that, let me hand it over to Roxanne, who will discuss the first quarter results in more detail. Roxanne Warner: Thanks, Marc. Turning to Slide 10. I will provide an overview of our first quarter results. As Marc mentioned, our results in the first quarter were negatively impacted by the ongoing macroeconomic and geopolitical events that have developed since late February. We delivered an ongoing EBIT margin of 1.3% and an ongoing earnings per share of negative $0.56. Our earnings per share, in particular, was negatively impacted by approximately $0.32 from the noncash loss associated with our minority interest in Beko Europe B.V. Looking at our segment performance, MDA North America was severely impacted by a sharp decline in consumer sentiment and the costs associated with our inventory reduction actions. MDA Latin America margin was pressured by the intense promotional environment. This was partially offset by the gains associated with the [ default ] tax ruling in Brazil. Conversely, the SDA Global segment continued to perform exceptionally well. Our free cash flow was negative $896 million as the benefit from our inventory reduction efforts was more than offset by lower earnings. Finally, we returned cash to shareholders and paid a $0.90 dividend per share in the first quarter. Turning to Slide 11, I will provide an overview of our first quarter margin walk. Price mix unfavorably impacted margin by 275 basis points. This was driven by 2 key drivers. One, collapsing consumer sentiment further reduced discretionary demand and negative impacted mix. Two, the encouraging industry pricing progress we observed in the first few weeks of the year was heavily disrupted by the Supreme Court's IEEPA tariff ruling and the anticipation of refunds, which created further external volatility and the return of an intense promotional environment. Our net cost was negatively impacted by volume decline and onetime costs associated with the planned inventory reduction, resulting in 175 basis points of margin contraction year-over-year. We executed our originally planned inventory reductions and executed incremental reductions due to the unexpected industry decline. Overall, we drove 20% year-over-year volume reduction. Raw materials unfavorably impacted margins by 50 basis points, driven by inflation of steel, base metals and resins. The current and projected steel costs are now putting us at the maximum pricing of our long-term steel agreements. We experienced a neutral impact from tariffs in the first quarter as the incremental cost from changes to Section 232 implemented in the second half of 2025 were offset by tariff recovery and mitigation actions. Marketing and Technology was favorable 50 basis points versus prior year, driven by reduced transition costs and a pullback in spending as we saw consumer sentiment shifts. Currency was also favorable by 50 basis points, driven by the appreciation of the Mexican peso and Brazilian real. Lastly, transaction impacts was unfavorable 50 basis points to the noncash loss associated with our minority interest in Beko Europe B.V. It is important to note that based on the current carrying value of this investment, Whirlpool will no longer recognize any further losses from Beko Europe B.V. Now I will turn the call over to Juan Carlos to review our MDA North America results. Juan Puente: Thanks, Roxanne. Turning to Slide 12, I will provide an overview of our first quarter results of our MDA North America segment. In the first quarter, net sales decreased 8% year-over-year to $2.2 billion. Consumer sentiment collapsed into record lows due to the war in Iran prevented the recovery of the volume loss during the winter storms resulted in recession level industry contractions with discretionary demand down approximately 15%. The segment delivered breakeven performance with EBIT margins negatively impacted by the sharp decline in demand, higher-than-expected cost to reduce inventory and the return of an intense promotional environment after the Supreme Court IEEPA rule. . While we experienced high cost from the actions to reduce inventory levels and higher tariff costs year-over-year, these were partially offset tariff recovery and mitigation actions. As over 3 years of accumulated inflation continues to pressure our business, we have announced the largest price increase in a decade in conjunction with acceleration of critical initiatives to drive cost reduction. We expect these aggressive actions to put MDA North America profitability back on track. We'll share more details of those actions shortly. Now I'll turn it over to Ludo to review the MDA Latin America and SDA global results. Ludovic Beaufils: Thanks, Juan Carlos. Turning to Slide 13 and review the results for our MDA Latin America business. Excluding currency, net sales decreased approximately 4% year-over-year. This is the net impact of an aggressive promotional environment in the region and volume increases from a growing in share gains. Due to the promotional pressure, the segment's EBIT margin was 6%. This margin was supported by a favorable Brazil tax ruling and our ongoing cost takeout initiatives, which partially offset the unfavorable price/mix. Turning to Slide 14, and I'll review the results for our SDA global business. This business continues to perform exceptionally well, delivering approximately 10% net sales growth year-over-year, excluding currency. EBIT margins expanded an impressive 250 basis points year-over-year to 21%, driven by continued growth in our direct-to-consumer business, solid execution of cost takeout initiatives and some marketing investment timing changes versus prior year. We are proud to celebrate the sixth consecutive quarter of year-over-year revenue growth, clearly underscoring the strength of our product portfolio and our value creation strategy. On Slide 15, we showcase a few exciting new products that we're bringing to the market this year. We're proud to bring meaningful consumer-centric innovation to the stand mixer while maintaining our iconic design and heritage. The new Artisan Plus stand mixer is now featuring an integrated bold light and precise speed control. In our compact fully automatic espresso machine with iced coffee gives consumers the option to brew at a lower temperature, while also delivering a space-saving design that fits effortlessly into many kitchens. Now I will turn the call back over to Juan Carlos to review the critical actions we are accelerating to recover profitability in MDA North America. Juan Puente: Thanks, Ludo. Turning to Slide 17, I'll review some of our bold actions to restore MDA North America margins. On April 17, we announced the largest price increase in more than a decade. This price change is being executed in 2 steps. First, we executed a promotional price increase, which is already in effect of more than 10% relative to the first quarter prices. This is the most impactful change and is expected to start driving price/mix improvements in Q2, ramping up throughout the year. Secondly, we announced a lease price increase effective on July 9. The second wave represented an additional price increase of approximately 4%. This multistep plan is designed to offset the cost inflation accumulated over the last 3 years that has not yet been reflected in prices. the anticipated cost inflation in 2026 and some residual impact of tariffs. In addition to these pricing actions, we will continue to deliver product innovation and expand our mass premium and premium product [indiscernible]. The 30% incremental foreign gain on the back of the record year of product launches in 2025 is largely installed. And we are seeing the results of each major appliances continue to deliver strong sell-through performance year-over-year despite the softer industry. Our robust innovation pipeline was further validated by the outstanding award win performance at Cadis, where Whirlpool Corporation secured an impressive 23 awards. Turning to Slide 18. I will highlight the successful launch of our Whirlpool branded UV laundry tower, which we presented in our last earnings call. The national rollout of this product featuring the industry-first UV cleaning technology that reduces bacteria in the wash while keeping Fabric Care in mind has been exceptionally well received and is exceeding expectations. This innovation is driving rapid share gains, capturing approximately 5 points within weeks and increasing our balance of sales with trade partners who have floored the unit. This confirms the competitive advantage of our game changer, UV clean technology. Turning to Slide 19. I'm pleased to showcase the new kitchen intelligent wall oven, which earned the prestigious Best of Show Award, the highest owner at Tavis. This new wall oven is one of the many products available in our new KitchenAid suite, which began shipping late last year. This product allows consumers to experience cooking through a new lens with the intelligent cooking camera that identifies food, monitors [indiscernible] and remembers your preference for your favorite recipes. We continue to see strong sell out through our market share gains to trend towards the highest level in over the decade. Turning to Slide 20. I'll highlight exciting innovation coming to our incinerator business. The new LED Defense order fighting in flung features the UV-free LED light that kills 99% of common terms include an odor causing bacteria. These innovation features addresses one of the biggest consumer pain points of bacteria order. This is yet another product that we see recognition at Kabi this year and as the next-door neighbor to the dishwasher continues to position us well for the eventual housing recovery. Turning to Slide 21. Let me provide an update on the initiatives we are accelerating to bring our business back on track. As we navigate the current macro pressures, we maintain our commitment to deliver our $115 million in cost saving account in 2026, which will be fundamentally supported by our ongoing design to value engineering efforts. Given our current EBITDA margins, we're taking decisive structural actions across several key levers to accelerate our cost actions. First, we are heavily leaning into the vertical integration, automation and the optimization of our manufacturing and logistics footprint. As part of these initiatives, we announced 3 key products: one, our new strategic investment in Peres Group, Ohio. Two, the ongoing modernization of our Amana, Iowa plant; three, shifting production from Pilar Argentina to Rio Claro Brazil. Together, this footprint and integration moves are expected to unlock approximately $40 million in savings in 2026, while significantly improving our product quality, speed of invent and overall supply chain resiliency. Additionally, as we shared previously, we are renewing our strategic sourcing initiatives. We have already completed the first phase of this project, and we're making good progress on the second phase. We expect to capture roughly $15 million in savings in 2026. Finally, we're introducing a new measure which encompass targeted fixed cost actions within our corporate center. We expect to generate approximately $20 million in sales, which we will plan to share more details about it in the near future. Collectively, these actions will have a carryover benefit into 2027, ensuring that we are actively managing the element with our control to offset external headwinds and restore our profitability. Turning to Slide 22. Let me detail the accelerating of our vertical integration and how we significantly strength our U.S. manufacturing footprint. We recently announced that we are making a $60 million investment in our new state-of-the-art production facility in Perrysburg, Ohio. This represents our 11th factory in the U.S. and our sixth in the state of Ohio, reinforcing the legacy that we are incredibly proud of, we started in America and we stayed in America for over 100 years. The strategic investments will drive greater efficiency and is expected to deliver approximately $30 million in annualized EBIT benefits. Turning to Slide 23. We are executing critical factory footprint changes to unlock greater operational efficiencies within our regional manufacturing network. First, in Armada, Iowa, we are undergoing a multiyear modernization effort. This modernization will refocus our manufacturing of bottom on reiteration and optimize our card production and subassemblies, generating an expected annualized EBIT benefit of approximately $70 million. We're also optimizing our Latin America operations by shifting our [indiscernible] washer production from Argentina to our Rio Claro facility in Brazil. This strategic shift drives valuable manufacturing cost efficiencies and logistic cost optimization, which we expect to deliver an additional $20 million in an annualized EBIT benefit. Turning to Slide 24. Let me provide an update on Section 232 tariffs. While the Supreme Court overturned IEEPA tariffs in late February, the administration took significant actions in early April to strength Section 232 steel tariffs on home appliances. The UPDATE 232 framework represents a significant win for the U.S. manufacturing and lasting structure advantage for work. As a reminder, Section 232 steel tariffs were first implemented in 2018 and have proven the durability by remaining in effect throughout multiple administrations. While home appliances were officially covered under the framework in the mid-2025, the recent updates in April have increased the overall tariff rate on Home Appliances and greatly simplify both compliance and enforcement. Because we proudly manufacture the vast majority of our products domestically and continue to invest in [indiscernible] manufacturing, this trade policy strongly supports our position. We estimate that a 25% tariff impact on our competitors will now be between 10% to 15% of our competitors to a U.S. major appliance net sales. By contrast, the impact of our MDA North America business is estimated to only be about 5%. Ultimately, these changes bring much needed predictability to the industry and deeply strengthen our competitive advantage as by far the largest domestic appliance producer. Now I will turn the call back over to Roxanne to review our revised expectations for 2026. Roxanne Warner: Thanks, Juan Carlos. Turning to Slide 26. I will review our updated guidance for 2026. Given the rapid deterioration of the macro environment since late February, we have revised our expectations for our 2026 results. On a like-for-like basis, we expect revenue growth of approximately 1.5% in 2026 due to our revised expectations for the North American industry. Even though the industry has seen substantial degradation of a new product launches are expected to continue delivering growth in MDA North America. We expect our MDA Latin America business to regain momentum and expect continued strength in our SDA Global business. On a like-for-like basis, we expect approximately 70 basis points of ongoing EBIT margin contraction to a full year EBIT margin of approximately 4%. Free cash flow is expected to deliver more than $300 million or approximately 2% of net sales, driven by significant structural inventory optimization. We expect full year ongoing earnings per share of $3 to $3.50. This includes approximately $1 impact due to the recent equity offering alongside an additional $1 impact due to an adjusted effective tax rate of approximately 25%, which is an increase compared to 2025. Turning to Slide 27, we show the drivers supporting our 2026 ongoing EBIT margin guidance. We have updated our expectation of price mix to 150 basis points reflecting the current impact of collapsed consumer sentiment, offset by the impact of our Board pricing actions announced in April. We expect to substantially improve price/mix and as we progress through the year with the benefits starting in May and ramping throughout the year. Net cost takeout reflects the expectation of delivering more than $150 million supported by our accelerated cost actions. While we have long-term steel contracts in place, the current and projected costs are putting us essentially at the maximum pricing of those contracts. This has a minor impact on our full year RMI expectations. However, combined with the inflation of base metals on resins, we have updated our expectations to approximately 75 basis points of negative impact from raw materials. We expect approximately 175 basis points of negative impact from the tariff announced in 2025 and updated in April 2026. We expect the benefits seen in Q1 from the tariff recovery and mitigation actions to be more than offset by additional tariff costs due to the Section 232 tariff changes announced in April. It is important to note that these impacts represent currently announced tariffs and do not factor in any future or potential changes in trade policy. Our expectations for marketing and technology currency and transaction impacts remain unchanged. Turning to Slide 28, I will review our segment guidance. Starting with industry demand, we expect the global industry to be down approximately 3% in 2026. In North America, given the drastic decline already seen in Q1 and the anticipated prolonged inflationary environment, we now expect full year industry demand to decline by approximately 5%. Our industry expectations for MDA Latin America and SDA Global remain unchanged. For MDA North America, we now expect to deliver a full year EBIT margin of approximately 4%. The Board pricing actions we've taken and accelerated cost takeout initiatives are expected to drive profitability recovery in MDA North America. Margin expectations for MDA Latin America and SDA Global remain unchanged. Turning to Slide 29. I will provide the drivers of our free cash flow guidance. We have updated our cash earnings and other operating accounts, consistent with full year EBIT guidance. We have not changed our expectations for capital expenditures and continue to focus on delivering product excellence and investing in our U.S. manufacturing footprint. We have taken necessary actions to optimize our inventory and are updating our expectations to improve working capital by approximately $150 million to support cash generation in 2026. As seen in our first quarter results, our working capital initiatives are off to a very strong start and we expect these structural changes to improve our day-to-day inventory levels. Our expectations for restructuring cash outlays related to our manufacturing and logistics footprint optimization efforts are unchanged. Overall, we expect to deliver free cash flow of more than $300 million or approximately 2% of net sales. Turning to Slide 30. I will review our capital allocation priorities, which have been updated to reflect the current business environment. Investing in organic growth through product innovation remains critical to our business, and this will continue to be one of our top priorities. We will continue to invest in product innovation, digital transformation and cost efficiency projects with approximately $400 million of capital expenditure expected this year. Secondly, we are committed to reducing our debt levels no more than ever. We expect to pay down more than $900 million of debt in 2026, continuing our commitment to deleverage. Lastly, after careful consideration with our focus on ensuring financial flexibility during this challenging operating environment, we have made the prudent decision to pause our quarterly dividend starting in the second quarter. This decision is critical to ensure that we create the capacity on our balance sheet to pay down debt and fund organic growth. Turning to Slide 31. I will review how we are taking additional actions to manage our debt maturities and ensure liquidity in an uncertain macro environment. We recently executed a strategic equity offering that successfully raised approximately $1.1 billion in capital. The use of these proceeds was focused on debt paydown and accelerating our vertical integration and automation efforts. The proceeds were used as expected. We paid down more than $900 million in debt and began to invest in vertical integration with the acquisition of our Paris burg, Ohio facility. We are in the process of moving to an asset-based lending facility. As we transition, we entered into an amendment to our existing credit facility reducing our available line of credit from $3.5 billion to approximately $2.25 billion effective in May. This amendment provides us with a valuable near-term flexibility and ample borrowing capacity. We have strong lender support on the asset-based lending facility and are tracking well to closing the next credit facility over the coming weeks. These decisive actions demonstrate our continued focus on debt paydown as we work to drive our long-term debt below $5 billion. Now I will turn the call back to Marc for closing remarks. Marc Bitzer: Thanks, Roxanne. Turning to Slide 32. Let me summarize what you heard today. As we discussed, our first quarter results were heavily impacted by severe external volatility and onetime events. The sudden macro pressures from war in Iran, result in plant in consumer sentiment and the disruptions to industry demand and pricing all masked the underlying operational progress we have made. However, we're actively managing what is within our control. We have announced significant pricing and structural cost actions that are firmly in place to restore profitability to our MDA North America business. By driving over $150 million in cost takeout initiatives and executing our largest price increase in the decade, we're aggressively addressing our margin pressures. More importantly, our ongoing U.S. footprint optimization and the recent Section 232 tariff update meaningfully strengthened our competitive advantage as a domestic producer. Because we probably built approximately 80% of the products we sell in the U.S. here in America, we're structurally positioned to win in this new tariff landscape. Additionally, our SDA Global business continues to perform exceptionally well, remaining a bright spot in our portfolio, consistently delivering revenue growth and margin expansion. [indiscernible] in small appliances or our major domestic categories, we continue to hold a leading position supported by our portfolio of iconic brands and innovative products. Looking further ahead, we know the U.S. housing market drop will be over at one point, and the March read of housing starts may be an early indication of a more positive trend. The eventual tailwind from an inevitable recovery will be strongly catalyzed by our leading established position in mobility channel as well as the strength of our in since rate business. Now we will end our formal remarks and open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Michael Rehaut from JPMorgan. Michael Rehaut: I want to take a step back and just kind of -- my question is really just on the consumer. And you highlighted the all-time low in confidence impacting results. So far this earnings season, we've heard from other building product companies where volumes are down, but not to the extent that we're seeing in appliances and many have kind of reported that while the consumer confidence is shaky, demand trends have been somewhat more stable, perhaps than what you've seen in your own industry. So I was wondering if you could kind of contrast what the drivers are that maybe has created that greater amount of volatility in appliances as you see it from the consumer's perspective compared to other products like power tools, flooring, paint, plumbing, et cetera. Marc Bitzer: Yes. So Mike, obviously, I mean, just to repeat the numbers, we saw minus 7.4% industry demand in Q1, of which March was minus 10%. So that is even in our industry, as a point at a very, very unusual low level. I mean that's why we pointed. The last time you've seen minus 10% was during the global financial crisis. I think one of the key elements, which makes our category may be slightly different for other categories at the end of the day for the majority of U.S. households, appliances or the purchase of appliance or a significant portion of our disposable income. So ultimately, it's a decision against the confidence the consumer has about the financial future. So it's just a big ticket item. It's not a $50 purchase. And that, I think, explains a little bit what it's been seen right now in Q1. And while we're just a little bit more anecdotes, one of the strongest businesses, which we had in Q1 was actually our spare parts and repair business, which just as an indicated by even consumers are holding back, replacing products and rather repairing it. We've seen that also [indiscernible]. Now the flip side is consumer confidence is on a 50-year low, but we've seen in other phases, consumer confidence actually moves pretty fast. And I wouldn't expect that level of confidence, but also that level of industry demand being that much down for the rest of the year. So we do anticipate a recovery. But I mean the first 3 months already in use so much down, no matter how you do the math, if you anticipate kind of a more flattish environment going forward, that's why ended the minus 5%. So I do consider and I agree with you, March was probably an exceptionally low outlier, which we didn't expect. Will that be the same going forward? No, but it's not going to be an immediate recovery in consumer environment. Michael Rehaut: Right. And I guess Secondly, obviously, big price increases by yourself, and it looks like from Slide 9, the industry as well in the most recent couple of weeks. How are you thinking about second quarter EBIT margins for North America? And if your assumptions hold, what are you thinking about the trajectory for the back half as well? Marc Bitzer: So Michael, as you know, we're not giving specific Q2 margin guidance. But let me give you a little bit broader perspective on the pricing and what we're seeing and how it flows through our bottom line. So first of all, and I want to refer to a slide which we presented, this is the biggest price increase. I think we'll refer to decade, honestly, 3 decades in the company, I have not seen that level of price increase. Keep in mind, there's basic essentially 3 components of that price increase. One, a very significant promotional price map or PMAP increase of more than 10%. That's already out there, and you see that already reflected in the retailer pricing towards the consumer. . Two, we significantly reduced our participation in promotions. So for example, July 4, we're going 2 weeks as opposed to 3 weeks. And when participating in all house formation and promotions. And three, we have a list price increase also kicking in July on the vast majority of our products. So it's kind of a multi-tiered approach. I would say the first 2 weeks of what we've seen in consumer visible prices have been very encouraging. So you could use the term in the first 2 weeks, yes, the pricing is sticking. Needless to say, that is key to everything going forward on the EBIT margin. And if that holds, then we will be in a good place. Now keep in mind also, and this explains a little bit Q1, I mean you anticipate in Q2, that chart shows you consumer pricing. That is not exactly how it exactly immediately flows to our bottom line. What I'm referring to, for example, in Q1, you still pay the former promotional investment on Q4 because it's a delayed or trailing effect. So even more April price and consumer starts, you're still partially paying for the large promotions out there. So there's a little delay effect, which also will flow through Q2. But again, if the pricing holds, as we've seen in the 2 weeks, I think you will absolutely see the gradual recovery of our EBIT margin as we'll be kind of pretty much laid it out. Operator: Your next question comes from the line of David MacGregor from Longbow Research. David S. MacGregor: My first question was just on the guidance. And I guess a few parts to this, but can you explain why you're calling out the improving price environment at the same time taking down your full year price/mix guidance? And would you tell us how much of the price improvement you're including revised guidance. It looks like you've got kind of partial inclusion with the reduced PMAP, but maybe none of the July increase? And then how much are you specifically assuming for mix? And then I have a follow-up. Marc Bitzer: Yes. So David, first of all, the full year number, which you've seen on Page 27, keep in mind, we basically have 3 months of negative pricing. And you saw that in the earlier pricing margin walk. So you first have to overcompensate on a full year base of what you already lost in Q1. So put it differently, yes, on a full year basis, it looks like it's kind of 25 points down actually on the Q2 to Q4 point is significantly up. Did we factor in the full amount of a price increase? No, which also means the success of a stickiness of price will determine a lot, but we took, of course, there's a certain assumption, which we took into account here, but maybe not a full amount. But let's see how these things develop. The big uncertainty, and this is why we were still a little bit cautious, and you alluded to this one is mix. And let me explain that a little bit because that's probably on everybody's minds. I know some people will ask or may ask about what happens to price elasticity. Actually, in all previous years, we've not seen so much an impact on consumer price elasticity. For a simple reason, last time consumer board [indiscernible] of 10 years ago, by and large, the prices are very similar. So we don't see the big elasticity from a pure demand, particularly in replacement market. What you do see, however, that in particular in a distressed environment, that consumers enter the store with a budget in their mind. So what I mean is we have a budget like $600, and we're basically going to stick by that price point. So what you see as opposed to a product with used to cost $599 is now fixed for $599, but stick to a $599 price point. What it means is for us a mix down to [indiscernible]. So we saw in other circumstances, not necessarily impact on volume of demand, but you do management mix very careful. And that's what we -- but obviously, that's the kind of biggest uncertainty. That's why we didn't fully factor in what happens to mix, how much can we compensate? How can we mitigate? We have tools in place, in particular with our new products to manage the mix in the right direction. But that is really the consumer uncertainty about what happens to mix when you go out in an environment which from a consumer perspective is distressed. David S. MacGregor: Got it. Okay. Just as a follow-up, I guess this is maybe a higher-level question, but can you just update us on the path from where we are now to your 9% target for EBIT margins longer term? How does that 500 basis point bridge look in terms of price/mix, net cost, volume leverage, RMI, the framework you typically employ? Marc Bitzer: Yes. I mean, David, the first big step is actually what will have to happen in '26. I mean, as you can -- obviously -- and I know you're probably already did that. That guidance which we've given on 4% this year implies when basically you have an exit rate, which is very different from where we are today. And without getting into the details of quarter-by-quarter margin. And you're basically talking about an exit rate of, whatever, 6% plus for North America. That is the fundamental step on everything. So the question on your 9% starts with exit rate of Q4 this year. The pricing actions together with the cost actions will put us on the right trajectory. Olmocost actions and a lot of things which we talk today about, obviously, as you can imagine, have a lot of carryover benefits. . So all the manufacturing footprint, the vertical integration, the numbers for '26, as you could tell, are yes, they're okay, that gives some benefits, but the real benefits start '27 going forward. That's when you see a lot of these benefits. So we carry the exit rate into next year. We have additional cost actions. That puts us on a path towards the 9%. I'm not saying that's a '27 number, but it puts us on the right path. Operator: Your next question comes from the line of Sam Darkatsh from Raymond James. Sam Darkatsh: So the two questions. First off, around the RMI guide, I think you raised it by about $100 million versus prior. Does that contemplate current market prices for PVC and resin and base metals? Or does that contemplate some give back from current market prices in the second half of the year? And then I've got a follow-up. Marc Bitzer: Sam, the short answer, it does. Let me give you a little bit of context. So as you know, you know it very well. Our #1 purchase product is steel to Roxanne's point. We're kind of getting to a cap of our loan agreements. We were hoping maybe a little bit below the cap, but that's fully factored in, but it's not volatile going forward for us. On the resins, it does not reflect the current spot because the current spot and the way how we buy the steel be okay. But it anticipates that Q3 and Q4, we have some headwinds on our plastic components. It just ultimately results of what we're seeing on oil prices. There is another element which may be on a relative case, maybe a little bit more favorable for North America as opposed to Asia. I think there might be some supply constraints in plastics, in particular, for Asia, which ultimately will also drive prices on plastics. Sam Darkatsh: But they do -- the second half does contemplate like current market prices for resin and oil throughout the year, and then it just hits you in the back half, just clarifying that. Marc Bitzer: Yes, it implies an increase of plastic prices in Q3, Q4 versus where we are today. Sam Darkatsh: Got you. And then my follow-up, you cut out a lot of production, obviously, you get the inventories in better shape during the first quarter. The rest of the year, are you anticipating production and shipments to largely match? Or is there -- are there more production cuts to come? Marc Bitzer: Yes. So Sam, first of all, to clarify Q1, we already planned and we alluded to this one in January, but we want to bring down inventory to the right levels. Obviously, with industry being what it is, we had to cut even more production than we ever had in mind. That caused us in the quarter around $60 million. So it was massive. But the good news is right now in [indiscernible] And North America are what we call on a really good on a healthy, sustainable level. Now having said that, we are anticipating also on a full year base that the industry demand will not fully recover. So also going forward, we will produce less than we, for example, produced last year. But we know that now we can adjust accordingly. So there's not going to be a big onetime reduction in inventory, but it's just more we want to keep production in line with what we're seeing in the industry demand. Operator: Your next question comes from the line of Mike Dahl from RBC Capital Markets. Michael Dahl: I wanted to ask first about tariff dynamics of 2 parts. First is you didn't record a material tariff impact. And in first quarter and you're still lapping the tariffs from last year. So curious if there was any booking of refunds or anything other onetime in nature there? And then when you think about then the net tariff impact going up for the full year kind of despite that. Can you just help us parse out like what the -- like obviously, your competitors are more impacted by 232, but what your net puts and takes are around kind of the current guide? And what's contemplated and how much is specific to 232? Marc Bitzer: So Mike, so let me first talk about how it impacts us and then maybe broader 232 tariff and I'll read into this one. So first of all, as you know, we as a company, we pay 3 different types of tariffs. That's the 232 with 301 in the past was the IEEPA and now to some extent to 122. So it's always going to be a stack player of this one. In Q1, we had a number of favorable tariff mitigation actions. That's a combination of post-summary corrections. It's on tackling sales and tariff refunds on IEEPA piece, not only 301 or 232. So in Q1, there was actually a pretty neutral guy or put it differently, it pretty much helped offsetting the cost of inventory reductions. So it's a wash. . On a full year basis, we do anticipate, and that's now effective for 232 and also with 122 changes, but the tariff costs on a fully base go up 0.5 point. That's fully factored in. Now again, that's from today's environment, if something changes, when something will change, but that's pretty much we expect on a fully base. But keep in mind, in every given quarter, you may have ins and outs, that depends on shipment patterns, but it depends on what happens on the 3 different tariffs. But on -- at the current state, if the tariffs not stays able, I think 1.27% that's pretty much what you should expect. Now the broader comment I want to make on 232, Juan Carlos in his comments earlier already alluded to this one. I know we may feel to be outside, like this is a small change of 232. It is actually big in viremication thus for our industry. And let me just explain it once again. It's before it was fairly complicated. But the appliance first time were included in 232 last year in April. The way how it was set up with cleared steel value declared weight was very complicated. And I would say, left many doors on for maybe not a full declaration of real cost. What changed now is a flat rate of 25% against the full declared product value. That brings a lot of stability and clarity to the equation because the [indiscernible], which are very competent, they have a lot of history and understanding of full product declaration. So we built to kind of circle that are very limited. And 25% on every single imported appliance in the country is massive. Nobody can escape that. So -- and of course, with our domestic production footprint, that what I would call is finally the environment which allows the level playing field. Honestly, we've been waiting for this one essentially for a year. It's now as of April 6, finally in place. And I personally believe it will drive a lot of positive changes for us. Michael Dahl: That's helpful. My second question is more demand related and specific to North America MDA. The understanding March was kind of an acute weakness. What are the trends that you've seen kind of since March and April and midway through May, especially as you and others have tried to implement the price because I know you're saying that you're not assuming full recovery from a demand standpoint, but it still seems like to get to your full year revenue guide in trends in addition to price mix has to improve through the year. And it also seems to imply still some share gain while your own charts kind of show you trying to take at least at this point in time, more price than your peers. So I'm just hoping to get a better walk for kind of the more recent dynamics you've seen and how you're envisioning the balance of the year. Marc Bitzer: Yes. So Michael, obviously, Q1 was really rough from the industry demand and March, in particular, that March was just a fall off the cliff on demand. April slightly improved, but still a negative trajectory. And honestly, that's pretty much what we expect. It's -- as long as the consumer sentiment is that much down, I don't think you will see strong market demand patterns, but not to the level of obviously in March. March was just a shock to the system. So April is slightly improving. What we do see, again, the basic trends of this replacement market continues, what do we see is still mix being under pressure. Consumers are budget constrained. It doesn't impact necessarily volume of appliance sales sold, but it impacts the mix. That's what we've seen in Q1. That's what we're also seeing in April, and that relates back to my comments is we do go very aggressively on the overall pricing, but we've got to manage mix in the meantime. So that's a market trend, which I think you will see much Q2 and Q3, i.e., volumes being soft to slightly negative and mix being under pressure. Operator: Your next question comes from the line of Eric Bosshard from Cleveland Research. Eric Bosshard: Just a clarification of 2 things. One, the March and April, the demand -- this is an industry shipments, is that correct? Marc Bitzer: That is correct, Eric. Maybe to elaborate on this -- keep on going. Eric Bosshard: Yes. I was just going to ask. I was curious on sell-through. Is the sell-through at what you're seeing at retail down 10% in March in the summer level in April? Or is this just a shipment issue? Marc Bitzer: Yes. So Eric, you're pointing out a good point. So what I'm referring to is industry shipment into the trade. In Q1, and of course, we don't have industry inventory levels. We know our own product inventory levels with retailers. So I would say, estimate in the 7.4% down, probably about 0.5 point to 1 point of inventory reduction of trade included in there, but not more. But that's just an estimate from our side. I think I would say on our products because we don't have industry sellout data. Our products in Q1 actually held reasonably good ground. So I would say the last 13 weeks what we've seen is pretty much a flat to slightly down sellout, so a little bit better when we sell in. And that's what we continue to see. Again, with respect to we feel good about our product range. Our products are selling and what [indiscernible] showed earlier, the KitchenAid products, in that market is still growing at double-digit rates. So we know our new products are selling, but the sentiment is just weak overall. Eric Bosshard: Okay. And so the dramatic change, the impact from the war is on the sell-in and the sellout has not changed meaningfully. Is that your point? Marc Bitzer: Well, just I need to clarify on our products. But even in March for sell-out was maybe 1 or 2 weeks overall sellout, which were really down. our products right now overall, we sell out a little bit better when we see from a sell-in on a broader market, but we now need to see what's going forward. But I mean, again, March also sellout was not the strongest. Eric Bosshard: And then secondly, just to make sure I understand that you talked through the strategy with promotions and last weeks that you're going to participate. And all of that is than reflected in the industry down 5%. Is that -- and I know elasticity's not an industry that responds a lot to price and price is not that important as what I've heard you say. But in terms of your expectation on volume. That's all captured in this industry now down 5% versus 0. That's the expectation of these changes. Is that correct? Marc Bitzer: That is correct. And just again, it's in a market which is strongly replacement-driven, again, more than 60%, it just does not make sense to have promotions on July 4, which are 3 weeks on. You're not going to increase market demand. You pull forward at best but you're not going to change market demand. That's what our decision, but retailers make their own decision. Our decision is we will only support the July 4, 2 weeks and not 3 weeks. And we're also not going to promote in every -- or participate in every single house promotion. Again, retailers may make their own independent decisions. That's what I'm referring to is what we are supporting because in such a market, you will not increase demand by excessive promotions. Operator: Your next question comes from the line of Rafe Jadrosich from Bank of America. Unknown Analyst: This is [ Sean Calman ] on for Rafe. Just first one, you guys are raising price a little more than your competitors despite the higher tariff impact for them. Are you expecting them to have to catch up on the price increases? And then with that in mind, what are you guys expecting for share gains this year? Marc Bitzer: Yes. So Sean, first of all, I really want to be clear to the audience. We're raising price not just because of tariffs. We have 3 years of pent-up of inflation, which we have never reflected. The entire industry has not reflected that. Many people could argue that you have 20 years of inflation which have never been passed on consumer. So we're passing on 3 years of pent-up inflation, which, at one point, we just have to pass on to consumers in addition to tariffs. Now that mix of inflation and at may be different to competitors and they make their own decision. We know what we have to do because of our cost base. We will reflect the cost of our products in the consumer prices, and that's -- and your question about are we slightly higher on competitors. It's more -- yes, we also have a lot of new products, which serve a higher value. Unknown Analyst: Okay. That makes sense. And then on the 10% to 15% impact from 232 to competitors. How does that compare to what you guys thought the IEEPA impact was? Marc Bitzer: First of all, the IEEPA impact, I think there was a lot of uncertainty in terms of how much were we paid and how much flow through. For me, the more relevant point is, it's very stable. It's hard to circumvent and bypass. There is no country hopping, which will happen because of different rates. So normally, it's probably slightly higher, but in terms of real effect, I think you could call that tariff has gripped, and I think that's a very, very different landscape than what we've seen a year ago, very different. Operator: Your next question comes from the line of Susan Maklari from Goldman Sachs. Susan Maklari: My first question is on the strength that you actually saw in SDA, which seems to be quite contrary to what is going on with the me and your overall comments on demand. Can you talk about how much of that strength is driven by your product specifically in the investments in innovation versus the exposure that you have there of the price point? And how you're thinking about the sustainability of that given the environment? Ludovic Beaufils: Susan, this is Ludovic. Thanks for the question. So in terms of the overall industry, we have not observed as much of a compression in consumer demand in SDA as what we just discussed in MDA, be it in North America or in other regions. It's probably a couple of reasons for that. And actually, some of you alluded to it, we're looking at lower ticket items and so the consumer resilience is a little stronger. In that context, we're gaining share. And I think that's based on the fact that we're selling at a more premium prices where the consumer also has more resilience, number one. Number two, we're doing really well with our new products. So whether that's the carryover effect from launches last year in blenders, for example, or just now the effects that are starting to show up in terms of stand mixer innovation and compact espresso we're seeing just really strong numbers all around. So really pleased with how that's shaken out so far. We're going to continue to monitor the industry going forward. And -- but with the strategy we have and the launches we've done so far, we're pretty upbeat about the rest of the year. Susan Maklari: Okay. That's helpful. And turning to the dividend. Can you talk a bit more about the decision to spend that what needs to happen to perhaps start to bring that back in? And then just more broadly, your thoughts on the current capital structure post the offering. And I know you talked about that path to deleveraging. But can you just give us a bit more color on how you're thinking about the future of the capital structure and what that will mean for uses of cash? Marc Bitzer: So Susan, first of all, to clarify the dividend decisions are made by our Board. But as the CEO, yes, to suspend the dividend is a very, very painful decision. I mean just what it is. And certainly, it's not something which I want to keep for very many quarters in place. So we would like to resume a dividend as quickly as possible, but it's -- clearly, it's a board decision. What has to be true is, basically, we need to have a better ongoing operating margin, and we want to continue to pay down our debt. That's basically has to be true before we resume the dividend, but it's really a reflection of we want to pay down our debt this year. You saw earlier, $900 million, that's massive. . And at the same time, we want to continue to invest in our future in products, but we did not want to cut back our capital investments. That's why we took the difficult decision. It's the right decision with cap allocation and we will reassess as the operating margins will improve. But again, it's ultimately a Board decision. Roxanne Warner: Susan, to tap into your question related to overall what we would do with capital allocation post the equity offering. We do have, at this time, ample liquidity to operate the business in the uncertain environment. As you do know, we have the $3.5 billion unsecured revolver. At the end of Q1, we moved to a $2.25 billion unsecured revolver as part of our covenant amendment. With that revolver, we, as I said, have ample liquidity. But with that said, given the uncertain environment that Marc just touched on, we will continue to look at all opportunities to bolster our balance sheet, whether it be continuing to evaluate asset sales, as we mentioned in the last earnings call and then also continuing to look at financial alternatives like tapping in to the capital market as needed with our focus on ensuring that our net debt leverage continues to improve. Operator: Your final question comes from the line of Kyle Menges from Citi. Unknown Analyst: This is Randy on for Kyle. Yes, I was just hoping you could talk a little bit about what you're seeing in the promotional environment in Latin America. And I guess your expectations around how you'd expect pricing behavior to shape up in that market from here? Ludovic Beaufils: Yes. This is Ludo. So in terms of our -- the promotional environment in America, first of all, the general background is one of pretty significant growth in the market at this point. We're seeing growth in Brazil. We're also seeing growth in a large number of markets around that America. With that said, we're I would say with the outlook for the rest of the year, considering the political environment, a number of elections coming up, just general volatility in the region. I think the promotional environment has been particularly intense in Brazil lately with foreign competitors, in particular, and imports being pretty aggressive on the back of a strong real. So we're responding to this. We have product launches in -- particularly in the premium side of the market where we've got a nice lineup coming through that's being very successful right now and [indiscernible] in refrigeration and laundry, number one. And then number two, we have a lot of cost actions accelerating in order to provide competitiveness in this particular market, whether it's vertical integration, whether it's the Rio Claro production facility expansion to taking the front load volume that was previously built in our Argentina plant. So we're confident we're being the competitiveness that will enable us to be successful in a highly competitive environment. Operator: Ladies and gentlemen, that concludes -- please go ahead. Marc Bitzer: I think that pretty much concludes today's questions and the earnings call. So first of all, I appreciate everybody joining. I'm not going to repeat all the commentary we made, but you obviously saw we had a challenge in Q1, which was driven by a very, very rough environment in North America. But even more importantly, we took right bold and decisive actions. And we're talking about actions, which are not just transactions or hope we're already in place. And you see also the pricing chart, we start seeing the effect of this one. So yes, the Q1 was challenging, but the actions are in place, and we have 100% focus on reverting the current profitability trends in North America, and we have full confidence behind that. So thanks for joining me, and we will talk to you in July. Thanks. Operator: Ladies and gentlemen, that concludes today's conference call. You may now disconnect.
Operator: Welcome to the Primo Brands 2026 First Quarter Earnings Conference Call. I will now turn the call over to Traci Mangini, Vice President, Investor Relations. Traci Mangini: Thank you, operator, and hello, everyone. With me on the call today are Eric Foss, Chairman and Chief Executive Officer; and David Hass, Chief Financial Officer. Our discussion today includes forward-looking statements within the meaning of U.S. federal securities laws, which are subject to risks and uncertainties that may cause actual results to differ materially. For more information, please refer to the forward-looking statements disclosure in our earnings release. In addition, the definition of an applicable reconciliations for any non-U.S. GAAP measures are included in our earnings release and the supplemental earnings slides, which were made available earlier today on the Investor Relations section of our website. With that, I'll pass it to you, Eric. Eric Foss: Thanks, Traci. Good morning, and thank you all for joining us. This morning, I'll provide a high-level review of our 2026 first quarter results. I'll share with you an update on our progress on our direct delivery customer experience, and discuss the current operating environment and our key growth priorities. David will then take you through our financial results and our updated 2026 guidance. Let me begin by stating how encouraged we are by the strong start to 2026 and the momentum building broadly across the business. First quarter net sales of $1.63 billion were up 1.7% on a comparable basis versus prior year. Marketing a return to growth for Primo Brands. Top line performance was broad-based, driven by both price mix and volume. It was fueled by the strength of our brands in retail, particularly premium and another quarter of sequential improvement for direct delivery with service levels exceeding our expectations. Our comparable adjusted EBITDA was $306 million, down 10.4%. This was driven by increased investments in the business discussed during our last earnings call to improve service and direct delivery, which have yielded operational improvements, higher on-time in full and an improved customer experience as well as incremental cost incurred attributable to the winter storms and incremental freight and logistics costs year-over-year. Based on our strong first quarter top line growth, we're raising our 2026 comparable organic net sales growth guidance to 1% to 3% from flat to 1% previously. At the same time, given recent geopolitical events and the dynamic cost landscape, while we believe we're well equipped with multiple levers to help mitigate oil-related commodities inflation, we are prudently widening our adjusted EBITDA range. As a result, we're updating the low end to $1.465 billion while maintaining the high end at $1.515 billion. This implies a revised adjusted EBITDA margin midpoint of 22%, which would be up 20 basis points versus prior year. Despite the macro environment, we are executing with pace and purpose so we are fit to win. We believe we are well positioned in an attractive growing category, supported by our differentiated portfolio of leading brands and our advantaged to market. On our fourth quarter earnings call in February, we outlined 2 critical near-term priorities. First was improving the customer experience in direct delivery and second was returning the company to balance growth. Our actions in the quarter drove meaningful progress across both of these priorities. First, on direct delivery, we achieved another quarter of improvement in key leading indicators and more importantly, sequential improvement in financial performance. Top of the funnel demand remains strong and customer quits continue to decline, leading to a sequential improvement in customer nets, which approached a net breakeven customer position in March. Customer call volume declined and our respond and recover solved by send-out initiative resulted in an accelerated pace of customer issue resolutions. Notably, one of our most important success metrics on-time in full reached over 90% in March. While pleased with our progress, there's more to do. So we're taking some additional actions. We're implementing a new warehouse management system to support superior supply chain execution from product supply to in-branch inventory to help satisfy customer demand. With the final wave of our U.S. integration behind us and those delivery customers now on one enterprise management system, we're focusing on harmonizing data enhancing analytics and insights and strengthening management tools to better serve our customers. We're reimagining and optimizing the end-to-end customer journey from customer sign-up and delivery, through billing and issue resolution. By enhancing the digital and mobile app experience, strengthening our win-back initiatives and designing a more efficient customer contact center. This ongoing work is grounded in 3 principles that we believe matter most to our customers: transparency, convenience and trust. And with that in mind, our current initiatives are focused on streamlining and improving communications across every stage of the customer experience. Our second priority was to get the overall business growing again. First quarter results put us firmly on that path led by retail, where we expanded our leadership position in branded bottled water, gaining both dollar and volume share in the category. We plan to build on this momentum through multiple growth vectors going forward, including brand building and innovation, improving our in-store presence, leveraging the momentum behind our leading premium brands and a comprehensive development approach to revenue growth management and pricing. Our summer plans around brand building include building on our successful partnership with Major League Baseball for our regional spring waters. This marks the first time our entire regional spring water portfolio is under one creative campaign. In addition, we'll have a significant presence in Philadelphia this July as we celebrate this year's All-Star game. As part of our multiyear partnership with Disney, we're launching a limited edition Pure Life bottle series this summer, featuring Toy Story 5. We are also focused on extending our retail presence by driving new points of distribution getting more display inventory and expanding our exchange and refill footprint. Expanding our presence extends beyond physical footprints to e-commerce. In April, for the first time, our regional spring waters became available through Amazon Grocery, providing an opportunity to increase household penetration, further accelerate brand awareness increase our share of virtual shelf at this important marketplace and add new customers. Another growth vector is prioritizing premium. Saratoga and Mountain Valley continues to be incredible contributors to growth, growing an impressive 43% in the first quarter. Both brands showed momentum via new points of distribution and grew volume and dollar share of category in the quarter. Going forward, we'll be amplifying awareness of our new Saratoga collection, 4 sparkling flavors in a slim can with the highly recognizable Saratoga's signature blue color. Also for the second year, Mountain Valley is the proud sponsor of the Academy of Country Music Awards in May. We believe these brands are early in their growth trajectory with expanding distribution, strong brand equity, and investments in additional capacity coming online to drive continued momentum. Saratoga capacity in Texas became operational in May and adding the second production location supports lower distribution costs. We expect to complete the Mountain Valley new greenfield facility in mid-summer. Our final growth priority is the development and execution of a more strategic and holistic revenue growth management approach across price points, package types and channels. Our pricing strategy begins and ends with the consumer, understanding how they define value and how that perception shapes their purchase and usage behaviors. At the same time, we assess our competitive position across our brands and products, while attempting to make sure our decisions reflect both our cost structure and margin goals as well as the economics of our retail partners. As we navigate today's dynamic macro environment, pricing, along with productivity initiatives, are levers we can use to help offset commodity headwinds. In closing, I want to extend my thanks to our associates for their pride and commitment to ensure we sell and serve our customers with passion each and every day. Let me also reiterate that the investment thesis behind the merger that created Primo Brands, the U.S. bottled water leader remains intact. We compete in an attractive category and continue to benefit from strong tailwinds in health and wellness and hydration. It's highly penetrated, frequently purchased and among the fastest-growing categories within liquid refreshment beverages. We are a clear leader in branded water and healthy hydration and a major player across the liquid refreshment beverage category. As a leader in a structurally advantaged category with consumer and customer-first culture, we're investing to capitalize on the category momentum and the power of our brands. By ensuring we elevate service and execution, we're positioned for sustained growth, margin expansion, stronger free cash flow and long-term stakeholder value. With that, let me turn the call over to David. David Hass: Thank you, Eric. For 2026, reported financials include Primo Brands results for both 2026 and 2025 as we're now past the anniversary of our first quarter as a merged company. For greater comparability on our continuing operations, we focus on comparable results, which exclude the Eastern Canadian operations, which we exited in the first quarter of 2025 and our Office Coffee services business, which we exited across 2025. Reconciliations of this information is available in our earnings supplemental deck available on our website. For the first quarter, comparable net sales increased 1.7% versus the prior year, driven by a 1.3% price or mix contribution increase and a 0.4% volume contribution increase. These results reflect an earlier-than-expected positive inflection in the business and validate that our actions are driving measurable top line progress ahead of plan. Simply put, we had a priority of returning to growth, and we delivered that with a fairly balanced first quarter top line performance. Volume, which we define as case goods equivalents measured in 12 liters, was driven by an increase in retail channels, partially offset by a decline in direct delivery. In retail, net sales growth was driven across multiple channels, particularly mass, club and away-from-home, pack sizes driven by occasion and case packs and brands led by Primo. As Eric mentioned, Saratoga and Mountain Valley, combined net sales were up 43% in the quarter, continuing their incredible momentum. While direct delivery net sales declined in the quarter, it reflected lower volume from a smaller customer base and a tough comparison to prior year, which was just prior to the main integration activities. That said, customer net adds trend continued to improve approaching breakeven. On a comparable basis, direct delivery sales declined 3% with sequential improvement each month within the quarter. The performance also reflects sequential improvement over the last couple of quarters, a trend we expect to continue over the balance of 2026. Comparable adjusted EBITDA decreased $35.5 million to $306 million with comparable adjusted EBITDA margin, down 260 basis points to 18.8% versus the prior year. Margins were affected by our decision to continue to operate with a higher route count than typical in order to strengthen our direct delivery service levels, an investment that we -- that contributed to better-than-expected net sales and customer retention. We expect these costs to begin to normalize in the second half of the year as we realign the cost structure under the improved operating model, which should improve the overall margin profile. This approach also helped us navigate the temporary disruptions caused by severe weather across many of our markets during the quarter. Leading indicators such as OTIF and customer volume trends validate these actions. Additionally, margins were pressured by higher transportation costs in retail tied to severe weather and a tighter freight market. Moving to our balance sheet and cash flows. Underscoring our commitment to a disciplined capital structure, on March 31, 2026, we proactively refinanced our $3.1 billion term loan at SOFR plus 275 basis points, extending the largest and nearest maturity in our debt stack to 2031 from 2028. Our liquidity remained strong with $874 million of availability between our cash balance and our unused line of credit. At quarter end, our net leverage ratio was 3.52x, reflecting expected seasonal working capital dynamics in the first quarter. We believe we remain well positioned to generate leverage ratio improvement as cash flow strengthens throughout the year. We generated $103.8 million of cash flow from operations for the quarter, adjusting for significant items, most notably our integration and merger activities cash flow from operations would have been $191.6 million. Adjusted free cash flow, which excludes integration-related capital expenditures, was $128.6 million representing a $73.9 million improvement versus prior year. Our strong financial flexibility allows us to reinvest in the business while returning cash to stockholders. First quarter total capital expenditures were $118.1 million, while $47.2 million were related to integration capital expenditures, the majority supported growth initiatives and maintenance. We also continued to execute our share repurchase program, repurchasing $29 million or approximately 1.5 million shares under the $300 million program announced last November. Before we move to our financial guidance, we believe it's important given the macro environment to outline our oil-related commodities exposure and how we manage that risk. We do not speculate on the market. Instead, we hedge key input costs to create predictability around our input costs and to strengthen our ability to forecast. Our risk management program blends fixed price and forward contracts where those instruments are available. The strategy is intentionally balanced and programmatic in structure and opportunistic when conditions allow. It's guided by guardrails and typically include coverage that extends 12 to 24 months. Our primary oil-related commodities include plastic resins, virgin PET or VPET, recycled PET or RPET, high-density polyethylene or HDPE and low-density polyethylene or LDPE which are used across our product portfolio as well as diesel and propane. Within our delivery fleet, about 40% of our trucks run on propane and given elevated industry inventory levels, propane markets have been relatively stable. For the diesel-powered portion of the fleet, we have significant hedge coverage in 2026, and we are extending some of that margin protection into 2027 through longer-term derivative contracts that lock in prices well below current spot levels. At present oil futures in 2027 remain significantly below today's levels, which, in our view, provides visibility and confidence to navigate the current situation. That said, the recent unexpected volatility in these oil-related input costs occurred shortly after providing our full year 2026 guidance in February. While this will likely result in some added headwinds, we are actively managing our cost outlook and believe our financial risk management program is one of the multiple levers to help mitigate the impact. Moving to our financial outlook. We are raising our comparable organic net sales guidance for the year. As a reminder, in 2026, we cycled the exit of our Office Coffee Services business, which accounted for $25.5 million in our reported 2025 net sales. This puts our comparable 2025 net sales at $6.635 billion. This is the base for our full year 2026 guidance and growth rate. With that in mind, we now expect comparable organic net sales growth in the range of 1% to 3% as compared to flat to 1% as provided in February. The increase is driven by not only the broad-based better-than-expected first quarter top line, but also a trajectory change in direct delivery. We now expect direct delivery to transition from the down 3% in the first quarter to closer to breakeven in the second quarter and to modest growth in the second half of the year. We also expect continued strength in our consolidated retail channels behind our brands and premium momentum. Our revenue growth management capabilities intend to fully leverage the power of our brands and should also help mitigate some of the commodity cost pressures. Turning to adjusted EBITDA. We are widening our previous range to include an updated low end of $1.465 billion and maintaining the $1.515 billion on the high end. While we are confident in the guidance provided in February, the macro and commodity environment meaningfully change shortly after. Despite the shift, we believe we have multiple levers, including pricing actions, growth initiatives, ongoing supply chain cost initiatives and our financial risk management program to help mitigate the impact. We expect to benefit from productivity improvements in direct delivery in the second half of the year as we realigned the cost structure under the improved operating model. At the same time, we plan to prudently invest in enhancements in the customer experience, including the redesign of our contact center and capabilities that support future growth. The revised midpoint adjusted EBITDA margin is 22.0%, down approximately 50 basis points compared to the previous guidance and continues to imply margin expansion for the year. We are reaffirming our adjusted free cash flow range of $790 million to $810 million. Beginning in Q2, we anticipate free cash flow add-backs to decline. This trend follows the first quarter reduction in EBITDA add-backs and reflects the typical reporting lag between expense recognition and cash payment. As integration activities mature, we expect a cleaner cash flow profile that more closely aligns with our underlying operational performance. Our strong free cash flow supports our capital allocation priorities, we continue to expect to deploy approximately 4% of net sales and capital expenditures for the year in addition to the approximately $100 million in integration capital expenditures. Also, given our commitment to return cash to stockholders last week, we announced our Board of Directors authorized a $0.12 quarterly dividend, which annualizes to $0.48 per share. We also intend to continue to execute our share repurchase plan, which had $78.3 million available under the program authorization as of the end of the first quarter. And with that, I'd like to turn the call back to Traci. Traci Mangini: Thanks, David. To ensure we can address as many of your questions as possible, please limit yourself to one question. And if we have time remaining, we will reap poll for additional ones. Operator, please open the line for questions. Operator: [Operator Instructions] And your first question comes from Peter Galbo with Bank of America. Peter Galbo: David, thanks for all the detail around the hedging program, particularly Slide 6, I think is very helpful. I wanted to just kind of pressure test that a little bit, David, first question being just how locked are you for the year? So if we do get kind of resolution based on the conflict and let's say, oil goes lower from here, is there actually kind of upside to what you presented, are you pretty much locked for this year? And then the second question is, I believe last quarter, you talked about a 48-52 split on EBITDA first half, second half for the year, I wanted to see if that still holds in light of kind of the updated guidance? And given that Q1 maybe came in a little bit light of Street, but maybe you could address those 2 items for us. David Hass: Sure. Let me maybe start with the second one quickly because I think in that regard, we're probably a little bit more like $47.53 and be about maybe one point from those investments inside the quarter. But again, I think we remain very encouraged by what that led to in our top line performance. And notably, when you see the momentum building in direct delivery, it gives us that confidence to go from essentially the down 3% in Q1 to closer to breakeven in Q2 and then resuming growth. So we think that those investments have really yielded the right activity set to respond to the consumer, deliver what they ordered on time and in full. And if not recover very quickly to sort of retain them, which is our #1 priority. Into the actual hedging and some of that activity year-to-date, really where we have technical hedges is within our diesel activity, and that's basically just using sort of market-based hedges. And then that allows us to sort of transact with that and sort of align that usage to our sort of what we believe is our fleet consumption. We're pretty far hedged but if there were to be a resolution as maybe the markets have anticipated this week, that would provide some opportunity for benefit balance of year. And it would obviously allow us to start to lock, if we felt so inclined, locked prices for '27 in that category itself. Where we have more forward priced contracts with our vendors, that happens in the resin portfolio. I think if there was a resolution, whatever premium that vendor or supplier is attempting to pass through to customers like ourselves and others, that would provide a more advantageous sort of negotiation posture for balance of the year and again into 2027 activities. Operator: Your next question comes from Nik Modi with RBC Capital Markets. Nik Modi: Maybe we can just talk a little bit about the scenarios between kind of the low end and the high end, whether it be on the revenue side and the EBITDA just so we can understand exactly kind of scenario wise, what would need to happen to get you to the high end versus, let's say, the low end? And then the second question is, would love just some more clarity around some of the pricing actions that recently have taken place. Maybe you can just kind of quantify like what percent of the portfolio is that happening? My understanding is that's not the case pack side. And do you believe you have opportunity to actually take price in case pack if you need to offset some of these headwinds from inflation? Eric Foss: Nik, it's Eric. Yes, thanks for your question. I think -- let me just start with the fact that I think we're really pleased, and I think we made meaningful progress in the quarter versus some of the growth priorities we laid out. So I'll get to your question. But I think the way to connect the dots to the low end or the high end on the growth side is look, we continue to improve our customer experience in direct delivery. That happened faster than we anticipated. So we were pleased by that. I think we also delivered earlier than anticipated this commitment to return the business to growth. I think on the last call, I talked about those 2 being our 2 focal points for the business. And I think what to me -- leads me to conclude that the growth is durable and even structural is the fact that, that growth was balanced and broad-based. And it was -- it took place across premium, which has been a key growth facilitator for us. But it also was applicable to our regional spring water portfolio. It was applicable to Pure Life. It was fairly broad-based across channels. And so as we look ahead, to me, the path forward is clearly compelling. We think that the continued brand building to create demand, continuing to raise the bar on execution. We are going to leverage a very disciplined revenue growth management approach to drive value and over time, expand margins. So anyway, we really believe that we're in a good spot as we look forward to the rest of the year. Second, I think when it comes to pricing, again, we still have a lot of work to do on RGM, but I'll give you a little bit of just the framework on how we think about pricing. Our first principle is that all of our pricing actions start and end with the consumer. So we keep the consumer and her decision-making matrix at the forefront of anything we would do. We also have to maintain competitiveness, which we have and will continue to do. And then we've got to look at the company P&L and look at the cost margin implications and try to make sure we're appropriately managing margins. So I'd say it's a comprehensive development approach that includes rate mix and trade spend. And what we've done is we felt like given the current environment, our focus would be more on immediate consumption, where you tend to see the consumer be more convenience oriented than price-oriented. We did take actions on the immediate consumption portfolio. We still maintain kind of the best value across channels in the marketplace. And relative to your question on case pack, yes, I think later this year, we probably look at taking some pricing on case pack, obviously, being very sensitized to the starting point, which is making sure we understand consumer value and elasticity on that package. Operator: Your next question comes from Daniel Moore with CJS Securities. Dan Moore: Obviously, encouraged to see the increased revenue growth -- revenue and growth guidance. Of the delta or change beyond the improvement or faster recovery in direct delivery, are there other areas of the business you're seeing more significant opportunities or acceleration? And how much of that delta is kind of volume versus price? Eric Foss: Yes. Well, again, I think, Dan, we want to continue to be very balanced. So I think we came out of the quarter with a combination of price mix and volume. I think as we look at the growth opportunities, I think, again, if you think about the kind of the structural tailwinds at the category and consumer level, you look at our leadership position within the category and then you think about the strength of our brands and where we can continue to make, I think, significant inroads on the direct delivery business. We also have an opportunity to continue to grow our presence in retail execution in store. And so you look at the momentum we have had at retail, I think that's poised to continue to run really well for us the rest of the year. And again, the encouraging thing, as I mentioned on Nik's question, is how broad-based that momentum has started to become as evidenced by the Q1 results. Dan Moore: Super helpful. I'll just sneak one more in. Just you are at your 6-month anniversary, congratulations. Beyond the stabilizing the HOD business, any surprises, takeaways or just things that you're hoping to change kind of culturally kind of high level, would love your thoughts there. And I'll jump back in queue. Eric Foss: Sure. Well, again, we -- I think have made a lot of progress on the culture front. We had our senior leadership team together a few weeks ago and had a very good discussion around our mission around hydrating a healthier America, rolled out a new set of values with the customer in our frontline really at the centerpiece of that. And so we continue, I think, to strengthen the team. I think we continue to change the mindset, which is we're a leader in not just the water and healthy hydration space, but a major player across LRB. And I think we're developing a winning mindset and changing our pace to be a little faster to market and our perspective of who we really are. So I'm really pleased with what's happened on the culture front and how the team has responded. And I think we're in a very different position than when I entered in November. Operator: Your next question comes from Andrea Teixeira with JPMorgan. Drew Levine: This is Drew Levine on for Andrea. You mentioned a number of potential mitigation options for the potential commodity inflation that we can be seeing, productivity and pass-through mechanisms among them. Just hoping you could talk a little bit more about some options on the pass-through side, particularly on direct delivery, maybe how quickly you would be willing to pull that lever? And if you could give some perspective on the stickiness of the customer base historically when there are changes in delivery fees, for example, I think in the past, it's really not been too much of an issue when the service is good. But clearly, that's been an area that was maybe a little bit more challenged over the past year. So if you could give us some perspective on when and if you would be able to adjust the delivery fee and expectations from a customer perspective when that happens? Eric Foss: Sure. Yes, it's Eric. I'll take that, and then David can jump in as well. I think let me just maybe back up as we think about how we might face any commodity or inflationary pressures, I think there's a variety of ways and a variety of levers for us to think about. One is just more top line growth and leveraging that growth through the P&L. Second is productivity and cost management third is pricing. And then we have 2 other ones available to us, which historically at times have been activated, whether that's the delivery fee that you referenced or fuel surcharges. I think our near-term focus is really on the productivity and the pricing side and wouldn't see us, at least in the near term, thinking about any changes on the delivery fee or fuel surcharge. And I think, again, our goal here is to make sure we have a balanced algorithm, meaning growth and margin improvement over time and that growth being a combination of sustainable volume and pricing actions. And that's what's reflected in the full year uptick in our growth guidance that you saw earlier this morning. The other thing I think I want to just make sure that I message is I've seen this movie before in the beverage industry. And I think when something like this happens, there's a couple of things to keep in mind. I think the first thing to keep in mind is unlike the growth potential that we have in this company, which is very much structural. This issue is transitory and it is not while near term, there is volatility and uncertainty that we have to deal with, it's not structural. Second, it tends to impact the industry broadly, both branded and private label players. And so everyone is kind of equally impacted. We all have our hedging strategies and forward by processes that David highlighted. But that's the reality of how this typically gets impacted. And then the final one is that we have multiple levers to offset, which I talked about earlier. So again, we are, I think, in a very good position to deal with this and to continue to move this business forward. Operator: Your next question comes from Derek Lessard with TD Cowen. Derek Lessard: Great to see that sales performance, Eric and David. Just one for me. I just want to maybe touch on the retail side. Can you maybe just talk about sort of the growth in your points of distribution category growth or maybe some share gains that you're getting in some of the categories? Eric Foss: Sure. Yes, I think this quarter, what you saw at retail as you saw us continue to expand points of availability across the portfolio. Certainly, we gain points of availability on the premium side, we also saw improved execution around number of displays. And I think as we go forward, again, we've talked about a more holistic approach to in-store executional excellence whether that be displays, space, certainly, coolers over time is a big priority for us. I think we were encouraged because from a market share standpoint, in addition to the great growth, we obviously translated that into both dollar and volume share gains in water and the same thing across LRB. So again, we are making progress. We still have more work to do, whether that's on the customer direct and direct delivery side or the retail side. But again, some of those success metrics executionally are starting to trend in a more positive direction. Derek Lessard: Absolutely. Congrats on that. And that's it for me. Operator: [Operator Instructions] Your next question comes from David Shakno with William Blair. David Shakno: This is David Shakno stepping in for Jon Andersen. Question, looking at Q2 specifically, if I recall correctly, a year ago, it was a pretty wet and cold spring season across the U.S. I just wanted to understand what we should be looking for in trends over the next couple of months here, especially as we get throughout May and June. And then separate from that, just kind of -- almost as a follow-up for the previous question, I wanted to understand if you're feeling kind of competitive pressures from private label, given the weaker consumer right now? I wasn't sure if there's pressure in specific channels, be it club or somewhere else or just kind of overall what you're seeing across channels related to private label, too? David Hass: Yes. Thanks, David. This is David. I think maybe let's start with a little bit of chronological framework of Q2 last year. So -- but what I want to start with is, first, Q1's performance. So if you recall last quarter, excuse me, same quarter prior year, we delivered a 3% top line. So on a 2-year basis, not only was this our hardest comp in which we still delivered actual growth. But it was obviously higher within the retail pieces of the business in our Q1 of this year. Obviously, offsetting what was the direct delivery decline I mentioned earlier, of approximately 3%. And so we feel incredibly encouraged by taking on a very challenged comp and still delivering. And again, that growth was broad-based and really balanced. And when you look at the disclosure tables in our quarter information in the supplemental, you'll see a couple of things that I want to call out. One, almost every brand and pack basically expanded in the quarter. And when you see things like purified water showing de minimis growth, if not a slight decline, that actually reflects a little bit more of the drag that's occurring in the direct delivery business itself. Similar things when you look at the premium water that grew substantially in Q1. And on a -- 2 years ago, this was a $50 million business in that quarter. So we've basically essentially doubled that business in 2 years. That's actually held back because Mountain Valley was a larger distributed brand on our route-based system in direct delivery. So that growth actually would have been even higher if we wouldn't have gone through some of the integration challenges and like you mentioned, weather disruption that occurred. So now let's kind of go into that sort of time line. Last year, just a few weeks ago, last year is when our Hawkin's facility was hit by a tornado. Actually, we held our board meeting in Texas in the market. And went and visited the plant, [indiscernible] celebrated what that team has done to rally and bring that factory back online and not only bring it online, but actually enhance it with an expanded line that we mentioned where Saratoga product will be coming to market from that facility. And then obviously, later in the quarter when some of the integration disruptions began. So we're not raising guidance because we have an easier comp. We're raising guidance because we have structural tailwinds that are occurring in the business and feel pretty confident in what's happening and what we're watching with both service levels as well as the retail execution, which was your original question, that retail execution continues to perform quite well. And it's not really at the expense of another brand and not really feeling directionally threatened at this point from private label, but I'll let maybe Eric provide some perspective there. Eric Foss: Sure. I think when it comes to private label, again, in this sector, you're always going to have a price-only shopper that's going to look for what's cheapest, which tends to be, in most instances, private label. Having said that, as the leader in the category, the good news is there is a high level of brand loyalty. And so as we look at our future consumption business. As I mentioned earlier, we have and intend to continue as we go through the summer months to maintain very good value around that portfolio. The encouraging thing in the first quarter is all 6 of our regional spring water brands grew. In addition to that, Pure Life, which is really our brand that tends to compete most against private label, and we manage a gap accordingly, also grow, as a matter of fact, grew mid-single digit. And so I think the point David and I are trying to convey is the durability and sustainability of some of the things we're starting to see on the recovery side. And certainly, that applies to our retail business in a big way. Operator: Thank you so much. That concludes our Q&A. I would now like to turn the call back to Eric Foss for closing remarks. Eric Foss: Thank you. Well, in closing, let me just state how excited we are by our start to the year. I think the fundamentals are strengthening. The momentum is building, and we're very energized by the opportunities ahead. and feel like we're well positioned to deliver sustainable long-term growth. So thank you for your continued interest, and we look forward to updating you on our progress. Operator: Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.
Operator: Hello, and welcome, everyone joining today's Americold Realty Trust First Quarter 2026 Earnings Call. [Operator Instructions] Please note this call is being recorded. It is now my pleasure to turn the meeting over to Rich Leland. Please go ahead. Rich Leland: Hello, and thank you for joining us today for Americold Realty Trust's First Quarter 2026 Earnings Conference Call. In addition to the press release distributed this morning, we have filed a supplemental financial package with additional detail on our results. These materials are available on the Investor Relations section of our website at www.americold.com. This morning's conference call is hosted by Americold's Chief Executive Officer, Rob Chambers, along with Chris Papa, our Chief Financial Officer. Management will make some prepared comments, after which we'll open up the call to your questions. Before we begin, let me remind you that management's remarks today may contain forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties that may cause actual results to differ materially from those anticipated. These forward-looking statements are based on current expectations, assumptions and beliefs as well as information available to us at this time and speak only as of the date they are made. Management undertakes no obligation to update publicly any of these statements in light of new information or future events. During this call, we will also discuss certain non-GAAP financial measures, including NOI, core EBITDA and net debt to pro forma core EBITDA and AFFO, among others. The full definition of these non-GAAP financial measures and reconciliations to the comparable GAAP financial measures are contained in the supplemental financial package available on the company's website. Please note that all warehouse financial results are in constant currency and reflects the Q1 2026 same-store pool unless otherwise noted. Now I'll turn the call over to Rob for his prepared remarks. Robert Chambers: Thank you, Rich, and thank you all for joining our first quarter 2026 earnings conference call. Before we begin, I would like to formally welcome Chris Papa to the team as our Chief Financial Officer. Chris started with us in February and brings more than two decades of experience, leading investment-grade rated and publicly traded REITs. Since joining the team, Chris has been fully engaged, meeting with leaders across the business, spending time with our investors and our customers and touring our facilities. He brings a unique mix of qualifications and experiences and I look forward to his many future contributions to drive our business forward. Turning to our first quarter financial results. We delivered AFFO of $0.29 per share above analyst consensus. Chris will review the full detail in just a few minutes, but I was pleased that all key metrics materialized in line or slightly better than our original guidance. I'm particularly encouraged that our physical occupancy was flat year-over-year, further supporting relief that inventories levels have largely stabilized. These trends have continued in April, and we believe that we should see a return to more normalized seasonal trends as we progress throughout the year. Our pricing metrics in the quarter also marginally overperformed expectations. Our commercial teams continue to lead with our value proposition, which we call the Americold Advantage, consisting of best-in-class service, technology solutions and a suite of services rather than simply competing on price as you see from others in our industry. Our customer churn rate remains low at 2.5%, further validating our view that service remains a top priority to our customers when considering their cold chain partner. During the quarter, we also successfully renewed 34% and of the year's fixed committed contracts that were either month-to-month are set to expire in 2026. This represents approximately $100 million of revenue and extends the weighted average duration of our future expirations. Importantly, we held our total rent and storage revenue from fixed committed contracts at 59%, very solid performance during a critical renewal period as customers continue to see the benefits of a fixed commitment structure. All of these metrics demonstrate our company-wide focus on commercial excellence as we navigate through the current market environment. Since stepping into the CEO role, I've been laser-focused on setting a strong foundation for future growth while ensuring that we deliver on our financial commitments. Despite a continued challenging macro environment, we've now delivered 3 straight quarters that either met or exceeded AFFO per share consensus. Beyond our financial performance, we also made significant progress this quarter on each of our 5 key strategic priorities. As a reminder, we launched these objectives late last year to strengthen the foundation of our organization and set us up for long-term success. They include delevering our balance sheet to maintain our investment-grade profile, actively managing our portfolio of real estate assets for maximum value, streamlining our operations and rightsizing our cost structure, identifying unique opportunities to drive occupancy growth across our network and selectively supporting our key customers and strategic partnerships. Perhaps the most foundational of these priorities are the strategic actions that we are taking to strengthen our balance sheet. Earlier this morning, we announced the formation of a new joint venture with EQT Partners, one of the largest purpose-driven real estate investors in the world. EQT is a sophisticated investor in the space as they own one of the largest cold storage providers in Europe. They will hold a 70% interest in the JV as part of their infrastructure portfolio with Americold contributing a seed pool of 12 properties across the U.S. worth over $1.3 billion. This represents a blended cap rate to the JV of approximately 7% for nearly $3,300 per pallet position. This is a significant premium to our public market valuation, which reflects the mission-critical nature of our assets. As part of the agreement, we will continue to operate the assets, providing continuity of service to our customers as well as providing ongoing asset management and development expertise to the JV. We anticipate closing the transaction in the third quarter at which point Americold will receive approximately $1.1 billion in proceeds, which we intend to use to pay down a portion of our outstanding debt. As many of you are aware, joint ventures are a common structure across the REIT industry, and I'm thrilled that EQT is a partner to help support our strategy. We expect to expand the platform in the future with additional development opportunities and we already have one exciting new project for consideration, which I will discuss in just a moment. As we look forward, our capital allocation priorities remain consistent, maintaining an investment-grade balance sheet, evaluating the portfolio for asset recycling opportunities and continuing our disciplined approach to new capital deployment. Our second priority is to actively manage our portfolio to address underperforming properties while pursuing the highest and best use of our geographically diverse network of real estate assets. During fourth quarter call, we indicated that we had identified 9 additional facilities to exit or idle in 2026. Two of these exits were completed in Q1. Both of these facilities were leased and we returned the keys to the owner at the end of the term after successfully shifting much of the customer inventory into our nearby facilities. These buildings will be torn down, removing over 62,000 pallet positions from the Atlanta market. Of the remaining facilities, the majority have been idled and are actively being marketed for sale. We'll continue to do our part to remove excess capacity from the industry, we continue to see smaller, less sophisticated operators remain under pressure. In the quarter, we've heard of several smaller operators and new market entrants either shutting their doors or struggling to meet their financial commitments. In many of those instances, we've been the beneficiary of volumes coming back to Americold, given our status as an industry leader. Beyond just exiting facilities, we are also pursuing attractive triple net leasing opportunities across the portfolio. During Q1, we identified one of these opportunities and purchased an existing leased facility at well below market value and subsequently entered into a 15-year triple net lease with a new tenant to fully occupy the space. By eliminating the rent expense and acquiring the property at a discount, we are able to achieve an approximate 10% return on investment. We also signed several other new deals in the quarter, and have increased our annualized leasing revenue by over $4 million or about 7%, which you can see reflected on Page 24 of the financial supplement. These are all great examples of the disciplined process we are taking to creatively ensure we are receiving the best value possible from our real estate assets. Our third priority is to rightsize our cost structure and drive efficiencies across our operation. Late last year, we identified $30 million in potential savings within indirect labor and SG&A, and I'm pleased to report that all initiatives were completed in Q1 as expected. We are exploring additional cost actions, and Chris will discuss the details in a moment. While we are taking cost out of the business, we are being extremely cautious to ensure that we retain the high level of customer service that Americold is known for in the industry. This quarter, I'm pleased to announce that our Fort Worth railhead site received the Warehouse of the Year award from Kraft Heinz. This award was measured by performance KPIs, like turn times, inventory accuracy, fill rates and others. It is a great example of our relentless pursuit of efficiency and high-quality service resulting in meaningful value to our customers. Congratulations to our team in Fort Worth. Our fourth priority is driving organic growth by leveraging our operational expertise, scale and mission-critical infrastructure in adjacent and underpenetrated sectors. Late last year, we announced our initial win with On the Run in South Australia, one of the nation's most well-known convenience and petrol providers. And in February, we announced the expansion of our relationship to support their national network in Australia. As a reminder, we are providing tri-temperature warehousing services to replenish every product in the store and have expanded our coverage to 600 of their locations. Additionally, I am very pleased that we recently renewed our contract with KFC in Australia for an additional 10 years. Americold has been working with KFC stores for the last 30 years, and we will continue to support their restaurant network of approximately 500 stores on the East Coast of Australia for the next decade, providing tri-temperature warehousing and distributing all of their food and nonfood materials. Additionally, as part of this extension, we are implementing a technology solution that will generate restaurant-level sales forecast recommend replenishment orders and proactively optimize inventory positioning across the network. This technology will serve as the backbone of our store support solutions and is a great example of a Americold's differentiated offering and the value we can provide to our QSR multiunit customers. In North America, we successfully closed on a handful of new pet food and floral deals this quarter, expanding our presence in nonfood categories. Additionally, our initial outreach into pharmaceutical space resulted in a new storage commitment for probiotic products. While these floral pet food and pharma deals will not be material to our results this year, they remain a great example of our ability to capture business in multiple new markets, while the food industry remains under pressure. One area that we're particularly excited about is our e-commerce business. which has been growing at a double-digit rate. We're currently onboarding 3 new accounts and shipped over 1 million package last year. We've expanded our capabilities to 5 sites across the country and have the ability to cover 99.5% of the U.S. population in 2 days or less. Similar to our retail and QSR customers, e-commerce is operationally intensive which gives us an advantage in pursuing new business given our experience in the area and the strength of the Americold operating system. On to our fifth priority. From a development perspective, our expansions in Sydney, Australia and Christchurch, New Zealand were both delivered on time and on budget during the quarter. Both expansions are dedicated to large grocery retailers and add critical capacity to both markets where our existing facilities are nearly full. These facilities are great examples of the opportunity to strategically invest in markets that have not seen the level of speculative activity that has occurred in the U.S. Finally, as I mentioned earlier, one of the important benefits of our new partnership with EQT is the ability to pursue new development opportunities through the joint venture. While we have significantly narrowed our development pipeline and refined our internal requirements for capital allocation, there are certain customer-driven projects where it makes sense to support our key relationships. A great example of this is a new customer dedicated project that we're kicking off with the McCain Foods and [indiscernible]. McCain is a top 5 customer for Americold with a nearly 35-year relationship. We have an existing plant advantage facility that is located adjacent to their manufacturing plant [indiscernible] they want to consolidate portions of their cold storage network with an additional 56,000 pallet positions at the site. The project is backed by a 20-year fixed commitment agreement from McCain and given the attractive profile of the project, we believe that this is a type of project that could fit well in the joint venture. This is truly a win-win transaction for all the parties involved and we're honored that McCain chose us for this opportunity, and we look forward to servicing them for many more years to come. This win also highlights the importance of having a diverse network at every node in the supply chain. Customers evaluate their future networks, we continue to see large food manufacturers looking to consolidate significant piles of inventory back closer to production. This is an area where Americold is a clear industry leader, and we're positioned to take advantage of this trend, given our long-standing relationships and solutioning expertise. I am proud of our progress in each of our 5 key strategic priorities this quarter with the joint venture representing a meaningful step towards our long-term leverage goal. As we continue to relentlessly pursue cost savings, portfolio management and see our developments continue to come online, we're confident that our current playbook will build a strong foundation for future success. With that, I'll turn the call over to Chris to provide some additional details on our performance in the quarter. as well as some of the anticipated impacts to our financial statements for the new joint venture. Chris? Christopher Papa: Thanks, Rob, and good morning, everyone. I'm excited to participate this morning on my first call as Americold's Chief Financial Officer. As Rob mentioned, since joining, I have met with our leaders, investors, customers and towards several of our facilities. I have been impressed by the capability and discipline and service our teams bring every day. I believe the scale, diversity and mission critical nature of our assets, when coupled with our operational expertise, creates a compelling value proposition that is difficult to replicate. I look forward to helping unlock this value for our shareholders. One of my first priorities when I arrived was to fully engage in the strategic capital raise initiative that our management team and Board have been diligently pursuing for the past several months. I am very familiar with real estate joint ventures and the partnership with EQT not only strengthens Americold's balance sheet by funding debt repayment, improving liquidity and reducing future development risk, but also allows us to preserve operational control and cash flow from the assets. As Rob mentioned, we expect the transaction to close in the third quarter, at which point we will receive approximately $1.1 billion in cash proceeds. We plan to use these proceeds to repay all of our 2026, 2027 and a portion of our 2028 U.S. dollar-denominated debt maturities. We will continue to operate these warehouses and receive a management fee of approximately $15 million to $20 million each year. We will also receive 30% of the NOI generated by venture, which will be recorded on our P&L under the line item titled Income Loss from investments in partially owned entities. These 12 properties represent approximately $231 million in revenue and [ $103 million ] in NOI for fiscal 2025. At the end of Q1, our net debt to pro forma core EBITDA was 7.1x, and this transaction on a pro forma basis would reduce this by about 3/4 of a turn. This reflects significant progress toward our goal of 6x or less. We believe this joint venture, along with our portfolio optimization, ongoing cost actions and stabilizing industry fundamentals is a strong confidence in our ability to achieve this goal and we remain committed to maintaining our investment-grade profile. While we don't know the exact timing of when the transaction will close, we estimate that the JV could be a full year headwind to AFFO of approximately $0.10 per share or roughly $0.06 per share for the second half of 2026. The ultimate impact will depend on when the deal closes. Since the business is currently performing in line to slightly ahead of our expectations, we believe that we will be able to offset most, if not all, of this impact. We are proud of our ability to preserve our AFFO guide for the year and simultaneously executed a strategic transaction to reduce leverage and significantly improve our balance sheet position. We will provide more granular updates to our individual guidance components as the deal nears completion. Beyond the joint venture, I want to discuss our first quarter results, where we delivered AFFO per share of $0.29, exceeding analyst consensus. We were encouraged to see same-store physical occupancy stabilize with economic occupancy contracting slightly less than anticipated. While we are not updating our full year occupancy and pricing assumptions, this is certainly encouraging performance. Outside of the U.S., we were pleased to see throughput in both Europe and Asia Pacific increased from the prior year and Europe's physical occupancy increased by over 800 basis points in the quarter. This is very strong performance and reflects the positive impact of the new business that was won by the international team over the past couple of quarters. Our Q1 warehouse NOI decreased 4.5% as expected, driven by the ongoing pricing pressure in the storage market and lower throughput and as well as a modest $2 million headwind from energy costs this quarter. As a reminder, almost all of our customer contracts have the ability to pass through abnormal cost increases. In addition to the power surcharge mechanism, we also lock in power rates in deregulated states, which represents about 25% of our portfolio. We have pursued energy-saving best practices for many years and we are also leveraging AI to strategically pull power from the grid during nonpeak outers. As a reminder, power expense is only about 6% of our same-store warehouse costs and we plan to leverage all available mitigation strategies to continue managing these costs closely and minimize future P&L impacts. As Rob mentioned, one of our key priorities for the year is to optimize our cost structure. We were pleased to see core SG&A for the quarter came in relatively flat year-over-year, absent the impact of certain accruals that can fluctuate in Q1 and and served to offset the typical wage rate inflation across the business. Late last year, we identified $30 million in savings between both indirect labor and SG&A. We are pleased to report that these were fully executed and we reduced indirectly by over 400 positions in Q1. Additionally, we recently commenced the second phase of this project to identify further cost savings opportunities in other parts of our business as well as to explore ways to enhance efficiency within our organizational structure. Our goal is not only to reduce expenses but also to optimize how our teams operate and collaborate across the company. I look forward to sharing the outcome of this broader analysis with you on next quarter's call. Additionally, as Rob mentioned earlier, we have made great progress with our portfolio management initiative, which is another one of our 5 key priorities for the year. As a reminder, when a site has no customers and minimal operating costs or otherwise meets the held-for-sale accounting criteria. We moved their expenses to transactions, strategic initiatives and other costs on our P&L. You can see on Page 22 of the supplement that we have included additional detail regarding these costs, which have decreased substantially versus the prior year. we exit sites, we are often able to terminate the lease or find an interested buyer in a fairly short period of time. Proceeds from the sale of our own properties will assist with delevering our balance sheet. Additionally, since I joined the company, we have asked the team to do a review of our expansion and development projects to reassess our assumptions around the timing of stabilization dates, cash flows and expected yields given the duration of the current macro environment. While certain of these projects have been impacted more than others, many of them have, in some way, felt the effects of the soft market conditions that are impacting our industry. We will update you on the results of this review in the coming quarters. In the short time I have been with Americold, I have been impressed by the team's focus on delivering the strategic priorities for the year. I believe these priorities are the best blueprint to building a strong foundation for the future and that this team can bring that vision to life. I'd rather be part of such a talented group of people and look forward to leveraging my expertise to further unlock this company's potential. Now I would like to turn the call back over to Rob for some closing comments. Rob? Robert Chambers: Thanks, Chris. I'm very pleased with our results this quarter and remain confident in the long-term direction of our business. In my discussions with customers over the past several months, they remain cautious with their outlook for the year. However, they are increasingly mentioning investments in innovation as well as increased marketing and promotional spend, all with a focus on consumer value. These actions are intended to help drive organic volume growth. And in fact, we've seen this reflected in their earnings releases over the past several months with several customers regarding sales growth in the first quarter of the year. I hope to see this continue to gain traction as we navigate through the balance of the year. As I've mentioned in the past, this is not a team that is standing still and waiting for a rebound in demand. I'm very proud of the significant progress that we are making across all 5 of our key priorities while also delivering on our financial commitments. The formation of the joint venture is a significant accomplishment, strengthening the balance sheet, illuminating the disconnect between public and private markets and supporting future development. It is also a testament to this team and this organization's ability to execute as well as the Board's focus on unlocking shareholder value. With disciplined capital allocation, a sharpened focus on operational excellence and unwavering dedication to customer service, I believe we are well equipped to create meaningful growth over time. I want to thank our associates around the world for their continued hard work and our shareholders for their ongoing trust and support. Operator, we're now ready to open the call for questions. Operator: [Operator Instructions] We will take our first question from Michael Griffin with Evercore ISI. Michael Griffin: I wondered if you could give a little bit more color on the facilities being contributed to the JV? Where they are along the cold chain, the age, customer mix, kind of anything that might have stood out for these assets? And then would you say it's indicative of the portfolio quality overall of that, call it, [ 7 ] transaction cap rate? And then lastly, I know you mentioned the cap rate in the prepared remarks, how should we think about this deal on sort of the EV to EBITDA multiple basis? Robert Chambers: Thanks, Michael. So let me start with the portfolio that we're contributing to the joint venture. I think what you said is right. I mean the facilities are a good representation of the broader North American portfolio. So what we see would be facilities that are geographically diverse, facilities that are across each of the node in the supply chain along with some conventional and automation as well. So, we think it's a very good mix of facilities. It's one that EQT was certainly excited about being part of a joint venture. And from our perspective, we're also very excited that we'll continue to have a meaningful ownership stake in those facilities and be able to operate them and provide the level of continuity to our customers that they would expect. So, it's a significant accomplishment out of the gate here, and we're very excited about it. Operator: We'll go to our next question, Brendan Lynch with Barclays. Brendan Lynch: Maybe just on the physical occupancy growth that you saw in the quarter, can you disaggregate that between consolidation to fewer facilities versus just the industry improving? Robert Chambers: Yes. There's really essentially nominal to no impact on the consolidation of the facilities because we adjusted that same-store pool at the end of last year. So the impact of physical occupancy in Q1 was a result of of industry stabilization, along with a combination of new business wins coming in, some market share gains that we've seen as we've seen some of the the volumes that have previously been with some of the small providers come back in. So I think when you look at the overall impact of the the physical occupancy being flat to slightly up, it was driven by industry fundamentals, new business wins and some market share gains. Operator: We will come next to Viktor Fediv with Scotiabank. Viktor Fediv: I have a follow-up on this JV financials. So it looks like EQT will be retaining 70% and you will be getting $1.1 billion in cash proceeds, which kind of implies $1.6 billion of total value? Just trying to understand puts and takes here and what is involved. Christopher Papa: Well, I mean, the total transaction size is $1.3 billion. given the debt we're putting on the project and our equity contributed to the venture, we think we'll be able to pull out about $1.1 billion of proceeds from the venture. Operator: And we'll take our next question from Craig Mailman with Citi. Craig Mailman: I think Bert had asked earlier about the EBITDA multiple, I don't think I heard an answer on that. Does the 7 cap equate the [indiscernible] a 9% to 10% EBITDA multiple? Maybe give us some guide rails there. Then, Chris, to your commentary that you guys are putting debt in the JVs, is that [ 0.75 ] term reduction on debt to EBITDA? Is that on a look-through basis, like if you assume the JV debt, do you still get that 3 quarters of return reduction pro forma that? Christopher Papa: Sure. So I'll answer that -- the second question first. Yes, the 3 quarters in turn we talked about includes picking up our share of the debt from the JV. So we'd be picking up our [indiscernible] portion of that debt as well as the EBITDA. I'll let Scott address the EV to EBITDA question. Scott Henderson: Craig, if you think about the math around this point, $1.3 billion enterprise value for the JV, an NOI strip before fee of roughly $110 million. And then with a fee of around $17 million to get to a net NOI strip of below 90s and that gets you to the 7% cap rate that we quoted. So hopefully, those parts help back to answer the question on a yield basis, which you convert to a multiple. And when you think about the fee strip in this business, given the operational intensive nature and the amount of work that goes into, it looks a little bit different than I'd say your traditional industrial business. Christopher Papa: And Craig, I'd add that if you look at it on an EV to EBITDA basis, is this valuation implies a couple of hundred basis point increase over where the stock is currently tripping. Operator: And we'll go next to Michael Goldsmith with UBS. Michael Goldsmith: It seems like you were active on the renewals of fixed committed contracts during the quarter. So maybe can you talk a little bit about the negotiations with your tenants, what was the feedback from them? What was their ability to absorb pricing or they're asking for concessions? Just trying to get a sense of what you're hearing from your content base and how that ties to your overall pricing power? Robert Chambers: Yes. Thanks, Michael. I mean, I think the work that we did in the quarter on fixed commitments is one of the -- that's certainly one of the highlights of the quarter. As we mentioned in our prepared remarks, we were able to work through 34% of all VIX commitment contracts that were month-to-month or had expirations in 2026. We said now for several quarters, just as a reminder that these contracts tend to be relatively ratable throughout the year, meaning there's not a whole lot of outsized renewals in one quarter or another. So that 34% represents great progress in a single quarter. We continue to be very pleased by the conversations that we're having that we think are extremely constructive given the fact that our customers recognize the value of having that fixed commitment structure. So despite the fact that we recognize and acknowledge that there's more capacity in the industry than there has been historically. We've been able to maintain that 59% of our total rent and storage revenue being derived from these fixed commitment contracts. So I think the metrics speak for themselves. It's playing out probably slightly better than what we had planned in our guide. You saw that our economic occupancy was down slightly while our physical occupancy was flat. That's exactly what we assumed would have in a slight contraction, but it is less of a decrease in terms of economic occupancy than what we had planned. So very, very encouraged to see that. On the pricing side of the equation, our pricing metrics are marginally better than what we had guided to. Storage on a constant currency basis was down slightly year-over-year. that does tend to be -- the storage side of the business does tend to be the side of the business that gets discounted a little bit more than the handling just given the margin profile. So we're making sure we're being thoughtful. We're making sure we're market competitive on the pricing and that we're responding to the current environment. But at the same time, we continue to lead with our value proposition. And I think as this environment has played out longer. Really what customers are seeing is that customer service is the most important decision-making factor and who they partner with and price is important. But if your product isn't showing up on time and in full and if you can't invest in your customer base and you can't grow with them and you don't have the technology solutions and your only value proposition is price, you eventually return back to the industry leaders. And so that's exactly what we're seeing constructive conversation and I think great progress this quarter. Operator: We'll take our next question from Michael Carroll with RBC Capital Markets. Michael Carroll: Rob, is there a specific mandate for the new joint venture as and does Cold need to contribute future investments or development opportunities in the JV? Or does this need to be agreed upon by both parties to be able to do it similar to like the McCain development that you talked about in your prepared remarks? Robert Chambers: Yes. Yes. Look, I mean, we want to scale this venture. And so we're -- we'll be working to provide first looks of development opportunities to the joint venture. There's no mandate that if the venture passes on those that we can't do those on our own accord. So we'll be providing some first looks related to development projects to the venture. We think that's the best path forward given the opportunity to do some off-balance sheet development to ensure that it doesn't -- there's less volatility to earnings there. Outside of that, no mandate to contribute other stabilized assets. So, this is going to be a great partnership. We think we're confident we found the right partner in EQT given the level of sophistication in the space and the alignment of our mission and our values. So a big step for both parties. Operator: We'll take the next question from Nick Thillman, with Baird. Nicholas Thillman: Maybe you wanted to touch a little bit more on just the joint venture assets being contributed and the profile of them. As we think of it relative to your fixed commitment contracts, is it similar to that [ 60% ] of that revenue associated with those assets is similar in mix and then what the average duration of those contracts are on those assets being contributed? And then maybe secondly, just a point of clarification on the $110 million of NOI, does that include the handling and services NOI contribution as well? Robert Chambers: Yes. On the NOI, it does. It's both the storage and handling NOI. I'd say the portfolio is very representative of the broader Americold pool. So again, these sites are geographically diverse. There's some conventional, there's some automation, they are customer dedicated. They're a multi-tenant. They're fixed commitments, they are transactional agreements. So be thinking about it as very similar to the broader portfolio, the Americold wholly owned portfolio will look very similar pre and post and that's exactly what EQT was looking for, and that's exactly what we felt like was the right path to see the JV. Operator: And we'll take question from Mike Mueller with JPMorgan. Michael Mueller: I think this is a kind of a dumb clarification question. But the release says that EQT isn't baked into guidance. But Chris, we were talking about the transaction in your comments, you mentioned that you're kind of proud to maintain guidance, while this is kind of going on simultaneously. So I guess, is it in guidance? Or is it not guidance? Robert Chambers: Yes. Let me start and then Chris can jump in. I mean -- so look, I mean, we're sitting here on May 7. And as we look at the trajectory of the business and we look at the fact that the metrics were coming in line to above our expectations, absent the joint venture, we would be thinking about the business trending towards the higher end of our original guide. And now that we have this joint venture that is still subject to traditional closing conditions, and we don't have the final date of when the JV will be -- will close. When we look at it on a pro forma basis, what we can sit here today and tell you is when we factor in the closing of a joint venture assumed during the third quarter that we'll be able to absorb the impact of that JV and maintain our original guide. So as we get a little bit closer to the closing of the JV, we'll be able to provide more specific details around each one of the guidance parameters. But the punchline here is we're maintaining our guide inclusive of the impacts of the joint venture in 2026. Christopher Papa: And then just to be more specific about the guidance, the original guidance that we had given obviously did not include the JV, but it also did not include any incremental cost optimization initiatives. So those two things going, obviously in different directions, coupled with, as Rob said, our business performing slightly ahead of expectations, gave us confidence to keep it in that [ $120 million to $130 million ] range from an AFFO perspective. But we'll come back with more details in the second quarter as we get as the JV and the cost optimization materialize. Operator: And we'll go next to Alexander Goldfarb with Piper. Unknown Analyst: So question, as you guys were doing the strategic review, and I'm guessing that it's not done, how does exiting regions, there's discussion in the press that perhaps maybe certain regions overseas to exit or larger outright sales? Just trying to see, is the JV -- is this -- you're done? I mean you have 2 activists as part of the company. So is this JV done or there are other potential strategic initiatives and work that could include exiting, whether it's regions or larger parts, larger portfolios? Robert Chambers: Yes. Let me maybe just take a step back, so I can answer the question holistically. I mean, since I took the role in September, one of my first priorities was to sit down with the Board and really develop what our key strategic initiatives we're going to be for 2026. And top of the list was strengthening the foundation and delevering the balance sheet. And so knowing that, that was a priority, we started a process, right, then there to evaluate multiple different options to get there. And we've looked at different geographies, portfolio management, this joint venture opportunity. And during that review process, it was very clear that there was tremendous interest from institutional investors, not just in this asset class, but also to have a continuing partnership with Americold. And so as we started down the path of evaluating this option specifically, we felt like it met all of our objectives. This option obviously strengthens our balance sheet, it gives us the opportunity to pay down debt materially and then lower leverage. This transaction highlights the lower gap between public and private valuations in the space. Again, these facilities are being contributed $3,300 per pallet position. We trade at $1,500 per pallet position right now. So a significant premium. This supports our ability to do development with our key strategic comers in a customer-dedicated manner and it allows us to continue to have a meaningful ownership percentage in these facilities and provide the level of continuity to our customers that we expect and do it all with a partner that we really feel has the right level of sophistication, experience and is aligned from a values perspective. So this is to the right deal. We're confident in that. We certainly are always open to options that create shareholder value. I think we're doing within our priority list. Several other key initiatives, the portfolio optimization and management with the 19 sites over the last 2 years that we're idling and/or exiting as having a meaningful impact on our results. The great things that we're doing to grow this business organically, you can see in our occupancy and our pricing. So I think this puts us on a trajectory to get to our long-term leverage goal, but we're always open to continue to evaluate opportunities on a go-forward basis. Christopher Papa: And Alex, if you think about it from a balance sheet perspective, we talked about in our prepared remarks that this transaction, we expect to have an impact of reducing our debt to EBITDA of about 3/4 of return. It's a meaningful contribution toward our deleveraging but it also allows us to start thinking about things on a go-forward basis on a more targeted basis, continuing to do more targeted capital recycling plus the cost optimization initiatives that are underway. We'll continue to also move the needle on deleveraging down toward that 6x or less target. So I think we could be more surgical on a go-forward basis, but certainly, we're considering options as we continue to manage the business. Operator: And we'll take a follow-up question from Mike Mueller with JPMorgan. Michael Mueller: Real quick on a prior question about JVs, the JV and development. I think you said we're going to provide some first looks to the JV. So is it -- you have the choice to provide a first look on development to the JV? Or you kind of have to do all U.S. development first looks to the JV? Scott Henderson: Mike, it's Scott. Yes, we've given EQT, our exclusive partner to look at those joint ventures and then there's optionality. After that, if that does not go into the joint venture, but hopefully, that answers the question. And it's targeted to North America, Mike, and we'll be focusing on some potential expansion opportunities in the pool as well as things like build-to-suits like the project, Rob highlighted on the call. Robert Chambers: And I think as we wrap up here, I just want to highlight again, as we move forward and sitting here today in May, we've got very clear priorities. This team is now a track record of demonstrating our ability on executing against those priorities and delivering on our guide and our financial commitments. And so I thank all of our associates for helping us support that and delivering every day and look forward to continuing that track record. Operator: And that does bring us to the end of our question-and-answer session. We'd like to thank everybody for joining today's call. We appreciate your time and participation. You may now disconnect.